WMT Stock: How to Trade Walmart’s Latest Test

Bet with the bulls in this WMT put spread

Beaten-down, left-for-dead Walmart (WMT) stock is finally receiving some love this morning. Shares of the ubiquitous retailer are popping by more than 3% in early trading.

No doubt the gap higher in the broad market is helping, but with the S&P 500 only up 1.75%, WMT stock’s 3% vault is notable. It has been many many moons since we’ve seen relative strength out of Walmart stock, so today’s rally is a welcome change for shareholders tiring of WMT’s weak ways.

Time will tell whether today’s newfound strength is a one-off or the start of something bigger. If nothing else, it serves as a good reason to take a deeper dive into WMT stock to see it there’s a trade to be had.

Where WMT Stock Is Today

For those keeping score at home, Walmart’s stock price has tumbled 27% since peaking north of $90 earlier in the year. Were it not for the oil crash having felled the twin kingpins Exxon Mobil (XOM) and Chevron (CVX), WMT would be the worst-performing stock in the Dow Jones Industrial Average this year.

Here is the bull case for WMT stock.

With Walmart shares already having taken a 27% haircut, a healthy amount of bad news and/or fundamental deterioration is already priced in. You gotta think at some point, whatever is spooking investors about the mighty retailer will be baked into the cake.

walmart stock price chart wmt
Click to Enlarge
Source: OptionsAnalytix

From a technical standpoint, WMT has finally descended to a major potential support level. And I mean major — as in a decade-long resistance level that resulted in a massive rally in Walmart shares once it was finally breached. We’ve now returned to the scene of the crime, and it wouldn’t surprise me to see buyers defend this $63 zone with aggression.

Additionally, WMT stock became quite oversold following last week’s stock crash, further increasing the odds for at least a counter-trend rally.

The WMT Trade

While WMT stock is making some strides on the technical front, the broader market is still a mess. As such, prudence dictates we take the higher-probability route in structuring our WMT trade. That way, we profit even if the stock chops sideways a bit before recovering.

Sell the WMT Oct $62.50/$57.50 put spread for 50 cents. The max reward is limited to the initial 50-cent credit and will be captured if Walmart stock price sits above $62.50 at expiration.

The max risk is limited to the distance between strikes minus the net credit, or $4.50, and will be lost if WMT stock settles below $57.50 at expiration.

To minimize the loss, consider exiting if WMT takes out the recent low of $61.50.

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

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Article printed from InvestorPlace Media, https://investorplace.com/2015/09/trade-wmt-stock-walmart-support/.

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