The Call Ratio starring Costco

A Ratio trade using Options – in this case a Call Ratio – is a trade involving the buying of 1 contract and selling 2 contracts at a higher strike. A trader will typically pick the short strike above near a well-defined resistance level (or maybe even some prior congestion areas).

To illustrate how this trade is set up, I bring you a current Earnings trade that I have on for $COST:

  • I am Long the March 07 Weekly 117 Calls
  • I am Short the March 07 Weekly 119 Calls (2x)
  • This trade was done at a $.16 debit

It is my expectation that their Earnings report will be solid and if there is any push up it will be muted given some Resistance near $119 (January Highs).

One thought on “The Call Ratio starring Costco

  1. The initial reaction to Earnings was a down move in price to the $113 level so this trade looks to expire on Friday with no real value. Key point: cost of trade is the loss if price does not recover.

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