Options traders bet on more gains for this defiant retail stock

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Options traders bet on more gains for a big-box giant

August has been rough for retail. The XRT retail ETF is on pace to lose more than 10% this month, as companies like Macy's, Nordstrom, and other department stores suffer.

But some big box names are bucking the trend, and options traders are betting on one for even more gains ahead.

Costco shares are up more than 6% in August and the stock traded at more than six times its average daily call volume on Tuesday, with more than 60,000 contracts changing hands among traders.

"Most of that activity was concentrated in the options that expire at the end of this week," Optimize Advisors President Michael Khouw said Tuesday on CNBC's "Fast Money."

"Earlier today we were seeing the 280 and 285 [strike calls], but as the stock appreciated, [traders] had to reach out for higher strikes. The strike I was looking at was the 292-and-a-halfs that expire on Friday. Roughly 3,300 of those traded at an average of $2.15, and ended up closing a little over $3."

As Khouw would point out, these strikes are trading cheaply considering that the stock is on pace to close the week above breakeven for these contracts. Essentially, traders are paying just over 1% of the current stock price in premium to make a bet that the stock will end the week less than 1% higher than it closed on Tuesday.

"Considering [Costco] moved 5% just today alone, you can see that those options are actually quite reasonably priced if you're making these kinds of short-term bullish bets," said Khouw.

Costco was trading 1.5% higher on Wednesday at $296.93 per share, above the $294.65 breakeven for these contracts.

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