Cheers, Costco. You did good.
Here’s what my options contract information looked like last week for my trade entries:
Here’s what happened when I sold:
Costco has been one of the most successful retailers throughout the pandemic because shoppers have bulk-purchased countless essentials this year, both in panic and in order to avoid going out as often as normal. Costco is a solidly performing company in normal times as well as Covid-19 times, so reopening news should also be bullish for Costco.
Technical Analysis showed that COST shares are dipping after a lengthy consolidation at the 20-day simple moving average. I was looking to buy these options at the limit price, and then Average In if they dipped to test the 50-day moving average below $370 per share.
Last week’s ‘Bonus Play’ was another earnings run-up trade that had potential for a very large short-squeeze. GameStop, the video game reseller, has completely shifted their business model from a brick-and-mortar basis to offering repair services coupled with online sales store pick-ups. GameStop is a large position in Michael Burry’s portfolio, who is the doctor portrayed by Christian Bale in The Big Short if you don’t recognize the name. The short-float, or shares that are currently short, are over 100% of the entire float of the market for these shares, indicating that shorting is now associated with heavy borrowing costs, and buying pressure could build as large volumes of short positions are closed out. I was looking to buy a call option for an earnings run-up play to capitalize on this.
These were slightly in the money calls, and I was looking for share prices to rise just $1 to $17.20 or above to take profits on this trade. Because of the volatility in GME right now, the swings in price could have been much larger than my projections, allowing for multiple opportunities to scalp this play before the company earnings call.
The Week Of November 29, 2020
It’s beginning to look a lot like the holiday shopping season! Historically, markets have been pretty bullish in the period from Thanksgiving to Christmas as investors try to analyze where people are shopping and invest to capitalize for next year. In addition to this, at the end of the year we often see winning stocks keep winning and losing stocks keep losing as a result of investors performing tax-loss harvesting on their accounts. Tax-loss harvesting occurs when investors decide to cut their losses at year end in order to take lower taxable capital gains for the year.
This week, economic shutdowns and stimulus agreements are back on the menu, because we still haven’t quite escaped the realities of the pandemic. However, because markets are forward looking, lockdowns with stimulus agreements combined with a continually closer vaccine arrival date remain a bullish mix of news headlines for markets. Brexit talks are also making a come-back in the headlines, keeping continued pressure on London’s FTSE exchange. Looking forward from here, you can expect trends to carry forward into the holiday season because consumable spending is strong when people shift their lifestyles through homeownership, hobbies, and pet parenting. Traders will be looking to see which stocks that won throughout the year are likely to keep being winners as they position their portfolios.
For the 14th time this year, Mortgage rates have dropped to a record low, signaling that the Fed is expected to continue giving full support to asset prices. Hiring data came in at low levels this week, almost 170,000 fewer jobs were created than analysts expected, however previous estimates were revised upwards. In addition to this, construction jobs specifically are growing slowly, which can sometimes act as a leading indicator for the economy. Since data remains relatively muted and conflicting across the labor market, it is currently an unhelpful indicator. The S&P 500 closed with gains 3 out of the last 5 trading days.
REMEMBER to only open positions that fit within your own personal risk tolerance, and NEVER ‘CHASE’ trades that you missed a good entry or exit on. There will be another opportunity for you just around the corner.
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