One Put, One Call, To Know About For Costco Wholesale

Consistently, one of the more popular stocks people enter into their stock options watchlist at Stock Options Channel is Costco Wholesale Corp ( COST). So this week we highlight one interesting put contract, and one interesting call contract, from the November expiration for COST. The put contract our YieldBoost algorithm identified as particularly interesting, is at the $112 strike, which has a bid at the time of this writing of 92 cents. Collecting that bid as the premium represents a 0.8% return against the $112 commitment, or a 12% annualized rate of return (at Stock Options Channel we call this the YieldBoost).

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Top YieldBoost COST Puts »

Selling a put does not give an investor access to COST's upside potential the way owning shares would, because the put seller only ends up owning shares in the scenario where the contract is exercised. So unless Costco Wholesale Corp sees its shares decline 3% and the contract is exercised (resulting in a cost basis of $111.08 per share before broker commissions, subtracting the 92 cents from $112), the only upside to the put seller is from collecting that premium for the 12% annualized rate of return.

Interestingly, that annualized 12% figure actually exceeds the 1.1% annualized dividend paid by Costco Wholesale Corp by 10.9%, based on the current share price of $115.47. And yet, if an investor was to buy the stock at the going market price in order to collect the dividend, there is greater downside because the stock would have to lose 3.01% to reach the $112 strike price.

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