A Wal-Mart Special on WMT Calls

by Jon Markman | September 27, 2012 8:20 am

Wal-Mart (NYSE:WMT[1]), a mom-and-pop chain of quaint department stores based in scenic Bentonville, Ark., has been consolidating in a two-month range, and it caught my eye in the wake of the Fed announcement[2].

This tends to be a good time of year for WMT shares, so I suspect they will break through the top of this range before too long, which is why I recommended that my Trader’s Advantage[3] members take a bullish stance on the retailer. While I play a mix of stocks and options, the recent flat spot has reduced the volatility implicit in the options to the point that the October calls are quite cheap.

WMTChart1 300x188 A Wal Mart Special on WMT Calls
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While the stock got ran over in Tuesday’s trading to close at its low, WMT should be fine once the bulls dust themselves off, as the stock is still trading in a narrow range.

I continue to like the WMT Oct 75 Calls at 73 cents or less. Be sure to use a stop-loss, which I have set right now at 40 cents. However, I typically update my stop-losses daily to reflect a stock’s price movements during each market session.

Everybody would love to find the perfect stop-loss system, of course, and there have been lots of books written about how to set stops. But there is no perfect system. My goal is always to set stops far enough away from the current price so that we don’t get stopped out on normal volatility, and also close enough that we minimize our losses if a major change in direction should occur.

Right now, volatility is on the low side. Someday in the future, when the market is highly volatile again, I’m sure we’ll look back on weeks like we have had since August with a wistful fondness. But for now, it’s just a little on the dull side.

Nothing wrong with that, however, as I know how to make money in stocks and options in any kind of environment — and I think WMT is a good pick for this type of market.

As of this writing, Jon Markman did not hold a position in any of the aforementioned securities.

Endnotes:
  1. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  2. the Fed announcement: http://investorplace.com/2012/09/qe3-is-here-hooray-quantitative-easing/
  3. Trader’s Advantage: http://tradersadvantage.investorplace.com/

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