The Consumer Staples Select Sect. SPDR ETF (NYSE: XLP) continues to show strength which bodes well for "one of the strongest" names in the group, Costco Wholesale Corporation (NASDAQ: COST), Todd Gordon, founder of TradingAnalysis.com, said Thursday on CNBC's "Trading Nation."
Costco's Chart Shows 'No Hesitation'
The broader stock market looks to be a "little overbought" at current levels but it would be unwise to "fight this very strong uptrend," Gordon said. Taking a look at individual charts for signs of clear momentum, Costco fits the bill as there are signs of upside but a defensive position can also be made.
Costco's chart is "showing no hesitation" breaking through the $310 level, he said.
To take advantage of a strong chart, Gordon said he bought the $305 call option and sold the $315 call option. The two contracts expire on Dec. 13 and represents a bullish bet that Costco would gain more than 3% prior to expiration.
The total cost of the option strategy is $4.43 per contract and implies a total potential loss of $440, he said. But the option strategy offers the potential for investors to carry the stock through earnings.
Gordon said his long strategy is both "defensive in nature" and "respecting a very strong uptrend."
Costco is scheduled to report its fiscal first quarter results on Dec. 12, one day before the options expire.
The stock traded around $304.12 per share at time of publication.
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