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CHERRY PICKS RIPE & JUICY TRADE IDEAS

Retail Options

By Michael Rechenthin

he list of retailers, right, is sorted from

Thigh to low with respect to volatility. Etsy has the highest volatility among the group, while Costco has the lowest. So how should these stocks be traded?

Let’s examine a semi-aggressive bullish strategy and a semi-aggressive bearish strategy for Etsy and Costco. These are debit spreads, so the risk associated with them is capped—the only risk is the value paid for the spread. But the potential profit is the width of the spread minus the amount paid for the debit spread.

Traders can create debit spreads in the same manner as the two shown. Generally, the idea is to create the spread so that the breakeven is below the current stock price for a bullish strategy, and the breakeven is above the current stock price for a bearish strategy. With that strategy, the stock doesn’t have to move much to provide a profit.

For example, for Etsy, the breakeven for the debit call spread is:

The long call of 160 + the debit paid of 2.88 = 162.88 breakeven

And the breakeven for the debit put spread is:

The long put of 170 – the debit paid of 2.52 = 167.48 breakeven

Michael Rechenthin, Ph.D., (aka “Dr. Data”) heads data science at tastytrade. @mrechenthin

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Take the high road

Etsy has the highest volatility among the powerful retailing companies in this group.

Symbol Company Volatility tastytrade Volatility Score

ETSY Etsy Inc.

55% Much more volatile W Wayfair Inc Class A 51% vs. S&P 500 PETS PetMed Express Inc. 47% GRUB GrubHub Inc. 46% JD JD.com Inc ADR 39% BABA Alibaba Group Holding Ltd. 36% TGT Target Corp. 31% AMZN Amazon.com Inc. 27% More volatile vs.S&P 500

EBAY eBay Inc.

27% WMT Walmart Inc. 26% COST Costco Wholesale Corp. 22% Slightly more volatile vs. S&P 500

Take the break

Here is the breakeven for the debit call spread with Etsy and Costco.

Symbol Company Debit Call Spread (Bullish) Debit Put Spread (Bearish)

ETSY Etsy Inc. (~$167) Buy 1 ETSY 160.0 Call in June-18’21 (38 DTE) Sell -1 ETSY 165.0 Call in June-18’21 (38 DTE) $2.88 debit Buy 1 ETSY 170.0 Put in June-18’21 (38 DTE) Sell -1 ETSY 165.0 Put in June-18’21 (38 DTE) $2.52 debit

COST

Costco Wholesale Corp. (~$381) Buy 1 COST 375.0 Call in June-18’21 (38 DTE) Sell -1 COST 380.0 Call in June-18’21 (38 DTE) $2.72 debit Buy 1 COST 385.0 Put in June-18’21 (38 DTE) Sell -1 COST 380.0 Put in June-18’21 (38 DTE) $2.52 debit