The prolonged search for a bottom in Costco Wholesale Corporation (NASDAQ:COST) shares has finally ended. It turns out it’s been waiting for discovery at $150 to the penny. With the low now found and enough pain now inflicted, a rebound in COST stock has finally commenced.

Optimists will say the bloodletting in the wake of Amazon.com, Inc.’s (NASDAQ:AMZN) purchase of Whole Foods Market, Inc. (NASDAQ:WFM) was overdone. All told, Costco shares shed 17% before finally finding a floor last week. That means AMZN almost single-handedly pushed COST into a bear market.

That’s some power.

The market obviously agreed that some relief was justified as confirmed by the $11 pop in the stock over the past two weeks.

But here’s where things get tricky. Bulls have made a valiant attempt at healing the damage over the previous three days, but much work remains. And with resistance looming overhead, I’m inclined to believe this rally will fail.

And therein lies opportunity.

Costco’s Charts

Costco’s weekly chart has traded in a nice little ascending channel over the past two years. The location of last week’s pivot corresponded with the lower end of the channel making it appear all the more logical. While the rebound could return COST stock back to the upper end of the range, I’m skeptical.

For starters, the recent swan dive transpired on much heavier distribution than any of the previous downturns.

Aftershocks often follow such significant drops, so I wouldn’t be surprised to see the rally falter. The old support level near $165 also has the potential to morph into resistance.

As usual, the daily time frame provides a clearer picture of the justification for today’s trade idea.

Let me first admit that I am somewhat surprised by the strength of this week’s recovery. The past three days have seen heavy volume, suggesting either some serious short covering or accumulation by the big boys. Furthermore, the jump has been robust enough to carry the Relative Strength Index (RSI) back into bull territory at 61.

Both facts make me reticent to make overly bearish forecasts here.

Really, I just think COST will have trouble rallying past $170 by September expiration. Three potential levels of resistance loom overhead — $161.50, $165 and $170. The first is previous resistance. The second is an old support level and the 50-day moving average. And the third is an unfilled gap.

With that much supply to work through, I suspect the Costco recovery could begin losing steam soon. I’ll be eyeing the stock over the next few trading sessions to see if some type of bearish reversal candle materializes.

Bet Against COST Stock

Implied volatility remains juiced for Costco’s options — despite this week’s rebound. With an IV Rank of 61%, we can still garner a fair bit of premium by selling out-of-the-money options.

That coupled with the desire to make a more conservative bearish bet has me eyeing bear call spreads.

Sell the Sep $170/$175 bear call for 50 cents or better.

Because fading the rally becomes more attractive the more overbought the stock becomes, I like the idea of scaling in. That means adding size if we can get a higher credit. So if I enter half of my position for 50 cents, I may consider adding the other half near 70 or 80 cents to raise my average credit. That way, when COST finally does reverse lower, we’ll return to profit much quicker.

The max reward is limited to the initial premium and will be captured if Costco sits below $170 at expiration. The max risk (and thus initial cost) is $4.50 and will be forfeited if the stock rallies above $175 by expiration.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.