Buying COST call contracts.

Costco (COST) should benefit from strong consumer spending. And after a surprisingly positive January consumer spending report, it appears the U.S. consumer is still in the mood to buy.

Shares of COST have pulled back alongside the overall market. But the stock found support twice near the $480 level and has remained well above the 200-day moving average trend line.

The stock is trading higher today despite weakness for the S&P 500 and Nasdaq 100. That sign of relative strength should lead to a further rally on any good news for the U.S. economy. Meanwhile, we have plenty of bearish exposure with our other positions if markets resume selling.

Buying call contracts at this level gives us a chance to profit if COST moves back towards the year-end highs. And buying in-the-money call contracts helps manage risk as these calls will retain some value even if shares pull back.