Costco options flow analysis after earnings beat

Costco Wholesale Corp (COST) saw its stock rise +2.38% to $917.86 following a post-earnings beat on September 24, 2021. The options market is in a phase of price discovery, with a 3-month implied volatility reduction of 1.78 percentage points to 21.19%. This "post-earnings IV crush" indicates that the premium once inflated ahead of the report has now deflated as the uncertainty surrounding the earnings report has been resolved. Traders who sold premium before the earnings release are the ones who benefited from this surge.

The 90/110 skew widening to 1.00ppt is an indicator that not all traders are convinced the post-earnings rally will continue. The $740 put, currently trading at ~19% OTM, could be a hedge against a major downturn or a speculative long shot. With a volume of 2,435 contracts vs. open interest of just 130, this suggests a significant new position opened today.

The $960 call, sitting $42 above the current price (~4.6% OTM) and expiring on October 16, may indicate accumulation of an existing bullish structure, suggesting a continued post-earnings momentum through mid-October. The $880/$885 put spread, which is 4% below the current price, is a measured and disciplined hedge, not a panic trade. The call/put ratio of 1.25x (47,912 vs. 38,417) is also a bullish signal, along with the stock confirming the upside on the earnings day and the $960 call accumulation.

However, some bearish signals are present as well, such as the skew widening, where puts are becoming relatively pricier, a deep OTM $740 put opening, and the $880/$885 put spread. Large players might not fully embrace the rally without proper hedging. The earnings preview on September 23 highlighted Costco's "chronic sell-the-news problem" at a 45x trailing P/E ratio, and the lingering skew in the options market suggests that warning hasn't been entirely forgotten, even on a positive earnings day.