While Target shares are tanking, Costco has been on a tear this year, surging 11 percent and hitting a record high on Wednesday.
But one trader appears to be making a big bet that the retailer will fall on earnings.
On Tuesday, the purchase of 4,000 March 3 weekly 170-strike puts attracted the attention of the options market. Since these cost $0.68 per share, the purchase represents a bet that the stock will end the week below $169.32 — 4.5 percent below Wednesday's opening price.
According to Dan Nathan of RiskReversal.com, short-term options trades like this generally indicate a hedge ahead of earnings.
"This looks like some sort of protection," Nathan said Tuesday on CNBC's "Fast Money."
The trader wasn't alone. According to Nathan, put volume was triple call volume during the session.
Those who bought puts ahead of Target's Tuesday morning earnings event were richly rewarded. The stock declined 12 percent on Tuesday, its worst slide in years.
Options pricing implies an expectation that Costco will either rise or fall 3 percent on its earnings event, which is slightly greater than its average postearnings move.
