Go Long on This Stock for Big-Time Gains

Last time Costco Wholesale Corporation (NASDAQ:COST) stock went on sale we bought it in bulk. The trade paid quickly as COST stock rallied back from a severe correction.

Costco is a premier retailer that had escaped the carnage that Amazon.com, Inc (NASDAQ:AMZN) has inflicted on the entire retail sector especially the brick-and-mortar retailers like Macy’s Inc (NYSE:M).

Since the U.S. elections of 2016, COST stock rose 30%, but that all ended in June of this year.

When once again headlines from Amazon taking to the streets by buying Whole Foods Market, Inc. (NASDAQ:WFM) slashed all retail stock prices severely.

On the news, Costco fell almost 20% before finally finding a double bottom in August.

It stabilized and mounted a strong bounce to recover half of the losses.

Once it crossed $158 per share, $165 became the target of a measured move.

But from here, it may not be as easy to get to $172 per share. This zone has been a level of contention since November 2015, so it is likely to become resistive. Both bulls and bears usually fight hard over long-term pivot points.

Today, I want to essentially rinse and repeat with another bullish trade knowing I have profits in hand. The benefit of having survived a strong selloff like the one COST just saw is that it creates solid support levels. I want to leverage those lines of defense to create income with no money out-of-pocket.

I like the company from a client and investor perspective. It trades at a trailing 28 price-to-earnings ratio, which is not a screaming bargain, but it’s not bloated either. The experts on Wall Street agree. Most of the analysts that cover it rate Costco stock either a BUY or HOLD, so they’re not overzealous.

However, almost all of them have price targets above where it’s trading now. COST is now trading almost $15 per share below the average price target; therefore, it is trading at the bottom end of the range on Wall Street.

I am not one to buy hoping but when I see value I’m willing to bet bullish on this value. And that’s the case today. I see value in Costco stock and I’m willing to bet that the recent floor will hold through 2017 and perhaps beyond.

COST stock is a winner regardless of the AMZN threat. I am willing to bet that it will rise to the occasion of succeeding in the long run.

Bottom Line on COST Stock
I won’t be buying the stock outright and risking $164 per share and pray for a rally in order to profit. Instead, I will sell downside risk against a value that I perceive and the stock. If the price stays above my risk, then I retain maximum gains.

The trade: Sell COST Jan 2018 $145 naked put and collect $1.60 per contract to open. Here, I have an 85% theoretical chance of success. But if the price falls below my strike, I accrue losses below $143.40.

Selling naked puts on a three-digit stock price requires margin. To lessen the dollars at risk, I can sell a spread instead.

The alternate trade: Sell COST Jan 2018 $145/$143 bull put spread, where I have about the same chance of success and yield 10% on risk.

It is important to note that in either set up, I don’t need a rally to win. Costco stock can fall and I can still achieve maximum profit.

Investing is risky so I never bet more than I can afford to lose.

— Nicolas Chahine

The One Stock That Could Make You a Marijuana Millionaire [sponsored ad]
FDA approval and a pipeline of breakthrough marijuana medicines are about to send this stock soaring another 1,303%, making millionaires out of many early shareholders. But time is running out for you to get in on the ground floor. This Special Report will give you all the details, absolutely free.

Source: Investor Place



Advertisement