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Collect Another Round of Income on Costco

John Jagerson and Wade Hansen

To receive further updates on this  Costco Wholesale Corporation (NASDAQ:COST) trade as well as an alert when it’s time to take profits, sign up for a risk-free trial of Strategic Trader today.

This morning, we’re recommending another bullish put write on Costco Wholesale Corporation (NASDAQ:COST).

Yesterday, we told you about an opportunity to trade on The Walt Disney Company (NYSE:DIS) before it reports earnings in August. We like to avoid holding trades through a company’s earnings report to limit our risks.

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Last week, we recommended a trade on COST for similar reasons. COST, like most retail stocks, reports much later in earnings season.

In the time since we recommended a put write on COST, the stock has risen to just above $280. We were able to buy back our COST August 2nd $267.50 put writes and lock in our profits.

Now, we’re looking to collect even more income from COST.

Consumers are Strong Despite Trade War

Despite some softness in the economy, the U.S. consumer is still looking very solid. We want to maintain exposure to retail stocks through COST because it’s been performing so well. We may start to look at other consumer stocks in the short term.

COST has noted in the past that the trade conflict with China will lead to higher prices. And now that tensions are escalating again, that could affect the COST’s share price.

Higher prices would theoretically lead to lower sales. Eventually, that would cut into COST’s profits.

However, when we look at the technical picture, we’re fairly optimistic. COST and other big retailers like Walmart, Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT) might be big enough to escape this situation relatively unaffected. 

New All-Time High

COST broke above resistance at $270 last week, and this week, it set a new all-time high at $281.37. The stock started to turn around yesterday, and it may be encountering some resistance. As it comes back down, we’ll want to look for signs of support.

Daily Chart of Costco Wholesale Corporation (COST) — Chart Source: TradingView

COST won’t report earnings until October, which means we can safely sell options that expire in August without risk of holding through earnings.

The $270 level may act as support, but it’s also possible options with a strike at that level won’t provide much premium. We don’t expect much of a pullback from COST, so a put write with a strike at $275, between support and resistance, seems like the best way to generate income without taking on too much risk.

To find out which COST puts we’re selling — and to get access to our full portfolio of income-generating trades — consider signing up for risk-free trial subscription to Strategic Trader today. 

InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of Strategic Trader.

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