Retail Giant's Bullish Trend Offers This Option Trade For Costco Stock

Costco Wholesale (COST) stock has been steadily carving out a bullish trend, printing a series of higher highs and higher lows while pulling back toward its rising 21‑day moving average. This kind of controlled retracement into short‑term support often sets up high‑probability opportunities for option traders looking to position with the overall trend.

Traders looking for a way to play Costco stock using options could use a bull put spread. As a reminder, a bull put spread is a defined risk strategy, so you always know the worst-case scenario in advance.

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A bull put spread will profit if Costco stock trades sideways or higher. It can also profit if it trades slightly lower, offering flexibility in uncertain markets.

The strategy involves simultaneously selling a higher strike put option while buying a lower strike put option in the same expiration cycle.

In exchange for selling the bull put spread, the trader receives the option premium. The trader faces risk equal to the difference in strike prices, less the premium received.

The Bull Put Spread Trade Setup

Traders that think Costco will stay above 940 for the next few weeks could sell a March 20 bull put spread between 935 and 940 for around 1.20 a share. Selling this spread would generate roughly $120 in premium with a maximum risk of $380 on a 100-share contract.

If the spread expires worthless, that would be a 32% return in one month. That assumes Costco stock is above 940 at expiration. The maximum loss would occur if Costco stock closes below 935 on March 20, which would see the premium seller lose $380 on the trade.

The break-even point for the trade is 938.80. That’s calculated as 940 less the 1.20 option premium per contract. That’s around 4% below the current price.

A prudent move would set a stop loss if the stock breaks below 950. Another approach is if the spread increases in value from 1.20 to 2.40, consider closing the position. Sticking to these stop loss levels will help avoid large losses if the stock drops back down.

For investors seeking income generation with defined risk parameters, this Costco Wholesale bull put spread presents an appealing opportunity in the current market environment.

IBD Ratings For Costco Stock

Investor’s Business Daily gives Costco stock a Composite Rating of 89 out of a best-possible 99, an Earnings Per Share Rating of 91 and a Relative Strength Rating of 46. According to IBD Stock Checkup, Costco ranks second in its industry group.

Costco is due to report earnings March 5, so this trade would have earnings risk if held through that date.

Costco is a membership-based retail giant known for its high-volume warehouses. It also gets high marks for strong customer loyalty and consistent traffic driven by everyday essentials. Its steady growth, disciplined cost structure, and reliable membership-fee income make it one of the most durable business models in retail.

Please remember that options are risky, and investors can lose 100% of their investment.

This article is for education purposes only and not a trade recommendation. Remember to always do your due diligence and consult your financial advisor before making any investment decisions.

Gavin McMaster has a masters in applied finance and investment. He specializes in income trading using options, and is conservative in his style. He also believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ.

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