Costco's Options Signal $850 Put Pressure: A Bearish Play with 7% Downside Potential?

• Costco (COST) plunges 3.26% to $855.60, breaking below key Bollinger Band support at $870.44

• Put/call open interest ratio favors calls (0.85), but $850 puts dominate this Friday’s expiring contracts

• Block trade sells 80 puts at $942.5 strike, hinting at institutional bearishness

Here’s the takeaway: Costco’s options market is bracing for a potential 7% drop to $800, fueled by heavy put positioning and technical breakdowns. Let’s unpack why this bearish setup could define the next 72 hours.

Bearish Sentiment Locked in at $850: Decoding the Options Imbalance

Costco’s options chain tells a clear story. This Friday’s expiring puts see 2,241 open contracts at the $850 strike—nearly double the next closest put (800 strike at 1,593 OI). Meanwhile, calls peak at $950 (2,246 OI) and $1,000 (2,053 OI), suggesting a tug-of-war between cautious bulls and aggressive bears.

The real red flag? A block trade of 80 puts at COST20250926P942.5 (strike price $942.50) last month. Think of it like a whale testing the waters—selling puts implies they expect the stock to fall below $942.50 without needing to buy it at that price. Combine that with today’s price action (breaking below 30D MA at $907.07) and you’ve got a textbook bearish setup.

News Flow: Dividend Disappointment Fuels Downside Momentum

Costco’s refusal to announce a special dividend hit like a sledgehammer. Even with $1.329B in membership fees and 5.2% household growth, investors are pricing in caution. Roth/MKM’s downgrade to Sell at $769—despite a $4.34 EPS beat—highlights the tension: fundamentals are strong, but the 47x P/E feels fragile.

Here’s the twist: membership renewals (92.2% in the US) and e-commerce growth (20.5% surge) still shine. But if Walmart’s Sam’s Club keeps gaining share or inflation spikes, those metrics could sour fast. The options market isn’t betting on a catastrophe—it’s hedging for a 10-15% correction.

Actionable Plays: Puts for the Short-Term, Calls for the Rebound

For the bearish bet: Sell the COST20251219P850 puts (strike price $850, expiring Friday). With the stock trading at $855.60, these puts are just $5.60 out of the money. If COST breaks below $870.44 (lower Bollinger Band), this strike could see heavy assignment. Stop if the price rallies above $885.60.

For the contrarian: Buy the COST20251226C930 calls (strike $930, expiring next Friday). If Costco’s management hints at a 2026 special dividend or beats Q4 guidance, these calls could catch a rebound. Target entry near $895 (30D support range), with a stop below $880.

Stock traders: Consider shorting near $870.44 (lower Bollinger Band) with a tight stop at $875. Target $850 first, then $830 if the bearish narrative deepens. For longs, wait for a bounce above $900—failure to hold that level would confirm the breakdown.

Volatility on the Horizon: What to Watch This Week

Costco’s options activity and technicals align on one theme: caution. The $850 level isn’t just a put magnet—it’s a psychological floor. If the stock closes below $850 this week, look for a cascade of assignments and a potential 7% drop. But don’t count out a rebound: membership growth and e-commerce momentum still have legs. Your best bet? Hedge with the $850 puts while keeping an eye on the $900 support. In this market, being ready for both outcomes might be the smartest play.