The news: When Amazon.com announced its cash play for Whole Foods Market on Friday, the grocery and retail stores tanked. Within two days, Costco – a very stable company – had dropped 12 percent. That’s way overdone, because Amazon is not going to eat Costco’s lunch here; it’s not your average grocery store or retailer, so this was just a “me too” sell-off, where everyone in the sector was punished by the action off the headlines.
The expectation: I think Costco rebounds at least $10 per share from here. Easily.
What I did about it: I bought longer-term options in Costco on Monday. I’m using options rather than the stock to limit my downside; there’s plenty of benefit if the stock rebounds in the next few weeks.
My strategy from this point: I’m not adding on to my position from here. I will sell half of my stake if Costco crosses under $160. Otherwise, I am looking for about a $10 move in the next month, and I’m happy and out if I get it.
Jeff Bishop is lead trader at TopStockPicks.com. He runs short-term trading strategies, using stocks, options and leveraged ETFs. At the time this article was published on RagingBull.com, he had the open options positions in COST that were purchased Monday, and was planning to trade them in accordance with this commentary.