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.
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.