Trader bets more than $2M on a big box breakdown

Costco is having its worst month in almost a decade, and one trader is betting more than $2 million that there is a lot more pain ahead for the big box retailer.

Sinking more than 8 percent in the last week, Costco stock has been feeling the heat after news that Amazon would acquire organic grocery chain Whole Foods.

According to Dan Nathan of RiskReversal.com, the bid had the options market in a frenzy.

There was one trade on Thursday that really caught Nathan’s eye. In the large wager, someone bought to open 5,000 January 2019 120-strike puts for $4.35. Since each put option accounts for 100 shares of stock, this trader is betting $2.2 million that Costco will close below $115.65 by January 2019 — a nearly 30 percent plunge from where the stock was trading on Friday afternoon.

“If that is an outright bearish bet, it seems pretty peculiar given how far out of the money it is,” Nathan said. “If you’re long the stock, it’s not a particularly good hedge either.”

Costco was trading at the $157.78 range midafternoon on Friday.