There’s been a whole lot of dropping of merchandise and little in the way of successful bargain shopping for investors in recent days. One venue where buyers have begun to pick up value is Walmart (NYSE:WMT).
Let’s look how to get more bang for your buck in Walmart stock.
I wrote about Walmart stock back in late May as part of trio of bearish Dow Jones Industrial Average plays based on death cross setups, chart patterns and option positions that fit in well with the technical situations we were seeing at the time.
We don’t always get them right, and death crosses (or any technical pattern, for that matter) don’t always cooperate. But in this instance, a July 75 put for $1 and an initial price target of $72 in Walmart stock resulted in profits of at least 200% and even upward of 350% at last week’s lows just north of $70.
So, if “shopping-for-dropping” in WMT rang the register, why are we now looking at the name as one to pick up off the discount rack? Have things really changed for the big-box discounter?
Let’s take a look, and you can decide if Walmart stock looks like a bargain. If you agree, we’ve got an options trade to try — a sensible approach for finding better value.
Walmart Stock Cons
One sore spot for investors that hasn’t been updated with good news is Walmart’s earnings picture. Back in late May, WMT disappointed by missing on both its top and bottom lines. Officially, Walmart stock investors will have to wait until Aug. 18 for the company’s next corporate confessional.
Looking at the much bigger picture, a recent story on Forbes discussed “reacting” versus “adapting.” In the author’s view, Amazon (AMZN) is an adapting force to be reckoned with and which will eventually kill Walmart’s reactionary defense of its business. I’ll assume this wouldn’t prove great for Walmart stock either, if his view proves correct.
Walmart Stock Weekly Chart
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Looking to the weekly chart of Walmart stock, I see the near-term opportunity for a rally. In correcting a rather healthy 23% from its highs this year, shares of WMT have also successfully tested zone support comprised of its December 1999 highs, a key lateral support line from 2013-14 and its 38%-50% Fibonacci retracement levels from its 2009-15 cycle, low to high.
Given the solid testing, confirmed weekly doji candlestick pattern and stochastics crossover in oversold territory, the technical case for higher prices in Walmart stock is there.
If shares of Walmart stock fail to hold this key support zone and trade below $70.25 on a weekly closing basis, it’s anticipated the next area of technical support wouldn’t come into play until the $63.50-$64 area. That’s defined by the 62% retracement and WMT’s 2008 highs.
While we would no doubt consider a bearish move a playable event were it to trigger, optimistically, let’s look at a bullish option strategy. After all, the evidence suggests Walmart stock will move higher before it moves lower.
Walmart Stock Bullish Option Strategy
Checking Walmart stock’s options board, the Aug $75 call for $1.10 or less is attractive. If shares of WMT move up 3% to the strike in the next couple weeks, the call should yield a profit of 65 to 75 cents. That would be a nice spot to take some profits. A trader could also adjust any remaining contracts into a vertical using the $77.50 call and more than cover the cost of the original position.
On the downside, which is always a possibility, use a stop-loss tied to the discussed $70.25 level in Walmart stock. Not only would that represent a bearish change of character with plenty of room to the downside, but managing position risk at that spot should keep the damage down to about 50% to 60% of the debit paid.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
