The slide in Walmart (WMT) stock continued this week with nary a bid.
It’s as if the denizens of Wall Street have suddenly adopted Walmart’s old slogan “Always Low Prices” as the motto for their relentless selling campaign.
Since peaking north of $90 in early January shares of the ubiquitous retailer have tumbled 19%. Another day or two of discounting and the stock will officially enter bear country.
Though dark days have descended on WMT bulls I suspect their luck is about to change. Piggish sellers will soon run into some weighty support zones that won’t be as quick to melt as some of their predecessors.
The $72.50 level has proven its resiliency over the past two years. It’s battle-tested having survived no less than six bear raids.
The bulls won’t stand alone in their defense, however. By happenstance, or perhaps the work of the market gods, the oft-watched 200-day moving average has ascended to the $72.50 support zone just in time for the upcoming test.
Bet With the WMT Bulls Using Put Spreads
On the derivatives front, WMT options have quickly become expensive again following the post-earnings volatility crush in May. The return of juicy premiums enhances the appeal of short option strategies like the one suggested below for WMT.
With Walmart stock in deeply oversold territory and the aforementioned support levels looming large now is as good a time as any to try our hand at a contrarian play.
If you’re willing to bet WMT stock is able to sit above $72.50 by July expiration, sell the Jul $72.50/$67.50 put spread for 80 cents.
The maximum reward is limited to the initial credit and will be pocketed if the puts expire out-of-the-money.
The maximum risk is limited to the distance between strikes minus the net credit, or $4.20, and will be forfeited if WMT descends below $67.50.
Of course, to reduce the loss feel free to abandon ship if the bears somehow miraculously succeed in their breakdown bid. That is, if WMT stock breaks below the $72.50 support zone, bid adieu to your fellow bulls and head expeditiously to the exit door.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
