COST Bearish Calendar Put Spread with 363% Upside


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This COST Calendar Put Spread Can Net 363%

Bearish play with a target stock price of $690

Strategy has +363% upside potential and 17% undervalued


Strategy: Long COST Calendar Put Spread
Sell 08-Mar-24 690 Put6.70
Buy 22-Mar-24 690 Put9.35
Debit:$2.65


Costco Wholesale stock price has dropped -0.7% today to $717.15. Today's price action is showing weakness in both the stock and the overall market. Setting up this calendar spread with strikes at $690 gives you a bearish bias to tap into COST stock's weakness.

Option Profit Calculator Results for COST Calendar Spread at 08-Mar-24 Expiration

In this scenario, the optimal stock price for the option strategy would be $690.00 on the date of the first expiration, March 8, 2024. This is equal to the strike price of the options in the spread. Since there is notable downward pressure in both the market and COST, and the strikes are below the current stock price of $717.29, the spread is taking advantage of the market's bearish bias. If the stock price is $690.00 at expiration, we can benefit from the 08-Mar-24 put, which we sold, expiring worthless, and the option that we are long, the 22-Mar-24 put, will still have time premium built in.

Since we do now know what the exact implied volatility will be on March 8, we can use our historical data to make an educated estimate to help us calculate the value of the 22-Mar-24 option. Applying the median historical implied volatility of 23.7 from similar options, the theoretical value of the put is 12.28 at the date of the 08-Mar-24 expiration. Using the above assumptions gives us a potential upside of +363% for this calendar spread.

COST Calendar Spread Value vs. Market Price

According to Market Chameleon estimated value, COST Calendar Spread is trading at a 17% discount to historical benchmark.

If we use historical data to measure how similar spreads in COST were priced in the market, the 4-year average price was 3.18, with a high mark of 4.25 and a low of 1.81.

Currently, the calendar put spread is bid at 1.85 and offered at 2.65. The midpoint of the spread is 2.25.

If we use 3.18 as our historical fair value benchmark, the current market ask price is at a 17% discount, while the current market midpoint represents a 29% discount.

Current PriceHistorical Values of Similar Spreads
BidAskMidpointAverageHighLow
1.852.652.253.184.251.81
Market Chameleon captures daily records of market data to calculate historical benchmarks and generate estimated values.

Takeaway

The COST calendar put spread we've identified here can be a good way to play a bearish outlook because the option strategy has a +363% upside potential, is 17% underpriced relative to historical measures, and will benefit from the stock price moving lower to $690.

See how Market Chameleon can help you make smarter and more efficient trades!



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Marketchameleon is a comprehensive financial research and analysis website specializing in stock and options markets. We leverage extensive data, models, and analytics to provide valuable insights into these markets. Our primary goal is to assist traders in identifying potential market developments and assessing potential risks and rewards.



NOTE: Stock and option trading involves risk that may not be suitable for all investors. Examples contained within this report are simulated And may have limitations. Average returns and occurrences are calculated from snapshots of market mid-point prices And were Not actually executed, so they do not reflect actual trades, fees, or execution costs. This report is for informational purposes only, and is not intended to be a recommendation to buy or sell any security. Neither Market Chameleon nor any other party makes warranties regarding results from its usage. Past performance does not guarantee future results. Please consult a financial advisor before executing any trades. You can read more about option risks and characteristics at theocc.com.


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