WMT: 2 Options Trades on Walmart Stock

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Retailing giant Wal-Mart Stores, Inc. (WMT) will be in the hot seat this Thursday, when the company steps up to release its third-quarter earnings report. And while weekly November option implieds for WMT stock aren’t pricing in much of a move — only about 2.5% — that doesn’t mean there aren’t trading opportunities to be had.

Walmart WMT stockFor instance, Walmart has already caught Wall Street’s eye even before the company’s quarterly report. Specifically, rumors are circulating that hedge fund mogul Bill Ackman is interested in a stake in the company. While there are no official reports confirming the rumors, that hasn’t stopped speculative options traders from jumping into the fray.

In fact, WMT options volume spiked to more than four times its daily average on Monday, with a majority of that activity crossing on the call side of the tape. Drilling down reveals that one large block of 21,000 contracts traded on the Jan 2015 $82.50 call strike for the ask price of 64 cents, or $64 per contract, bringing the total outlay on the position to about $1.34 million.

If these Walmart options were indeed purchased, the trader would need WMT stock to rally more than 4.6% from yesterday’s close to trade above $83.14 in order to realize a profit.

Given Walmart’s volatility this year, this is quite a bullish bet.

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The stock has been in an uptrend year-to-date, but the road higher has been far from smooth. The shares have been guided higher by their 50- and 20-week moving averages, but support on the downside has been quite porous, while overhead resistance at $80 has been considerably stout.

There are factors that could play into a WMT rally, however.

Analysts are expecting a profit of $1.12 per share of WMT stock, with revenue seen arriving at $119 billion. However, EarningsWhisper.com reports that the third-quarter whisper number for Walmart earnings arrives a penny higher than the consensus at $1.13 per share. Meanwhile, the stock could be due for a price-target increase or two, with the 12-month consensus price target of $78 represents a discount to WMT’s close at $79.44 yesterday.

2 Options Trades on WMT Stock

Bull Call Spreads: Judging from weekly November implieds, the immediate upside potential for WMT lies at $80.99, while the downside lies at $77.01. A breakout above $80 could be big for Walmart stock, potentially bringing additional buyers to the table if the shares can establish a foothold above this former resistance level. Those traders looking to follow the bulls’ lead in the options pits might want to consider a Dec $80/$82.50 bull call spread. At last check, this spread was offered at 72 cents, or $72 per pair of contracts. Breakeven lies at $80.72, while a maximum profit of $1.78, or $178 per pair of contracts, is possible if Walmart stock closes at or above $82.50 when December options expire.

Selling Puts: Alternately, if you’re not comfortable going all-in bullish on WMT, you could look into a put sell position. For instance, a weekly Nov. $70.50 put sell stands a good chance of finishing out of the money when these options expire at the end of this week. At last check, the weekly Nov. $70.50 put was bid at 55 cents, or $55 per contract. The upside to this put sell strategy is that you keep the premium as long as WMT stock closes above $70.50 when November options expire at the end of this week. The downside is that should WMT trade below $70.50 ahead of expiration, you could be assigned 100 shares for each Nov. 70.50 put sold at a cost of $70.50 per share.

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


Article printed from InvestorPlace Media, https://investorplace.com/2014/11/wal-mart-stores-inc-wmt-stock-options/.

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