The Consumer Staples Select Sect. SPDR ETF XLP continues to show strength which bodes well for "one of the strongest" names in the group, Costco Wholesale Corporation COST, Todd Gordon, founder of TradingAnalysis.com, said Thursday on CNBC's "Trading Nation."
Costco's Chart Shows 'No Hesitation'
The broader stock market looks to be a "little overbought" at current levels but it would be unwise to "fight this very strong uptrend," Gordon said. Taking a look at individual charts for signs of clear momentum, Costco fits the bill as there are signs of upside but a defensive position can also be made.
Costco's chart is "showing no hesitation" breaking through the $310 level, he said.
To take advantage of a strong chart, Gordon said he bought the $305 call option and sold the $315 call option. The two contracts expire on Dec. 13 and represents a bullish bet that Costco would gain more than 3% prior to expiration.
What's Next
The total cost of the option strategy is $4.43 per contract and implies a total potential loss of $440, he said. But the option strategy offers the potential for investors to carry the stock through earnings.
Gordon said his long strategy is both "defensive in nature" and "respecting a very strong uptrend."
Costco is scheduled to report its fiscal first quarter results on Dec. 12, one day before the options expire.
The stock traded around $304.12 per share at time of publication.
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