Selling our COST call contracts.
Yesterday’s stock market selloff hit shares of COST hard.
The stock broke through an important support level and could have farther to fall.
Long-term, I still think COST is a good investment.
The company should be able to raise membership prices, driving profits higher.
And I expect a new special dividend to be announced in the next few quarters.
However, with the short-term weakness, it makes sense to step to the sidelines and protect our capital.
Since we purchased in-the-money calls with several weeks until expiration, our position didn’t lose as much value as it could have with yesterday’s selloff.
That’s the beauty of our option strategy and one of the ways we’re able to take aggressive shots while still keeping risk at acceptable levels.