Wal-Mart Stores, Inc. (WMT) takes the earnings stage this week, and traders will be looking to see if the world’s largest retailer can keep its momentum going. Walmart’s stock price has enjoyed a solid rally off its November bottom, holding up well despite broad-market turmoil.
While WMT isn’t known for big post-earnings moves, there are still opportunities for Walmart stock options traders ahead of the event.
Starting off with a look at expectations, Wall Street has its sights set on fourth-quarter earnings of $1.43 per share on revenue of $130.76 billion. In the same quarter last year, Walmart earned $1.61 per share on revenue of $131.56 billion.
Expectations are a bit higher among some in the brokerage community, however. Currently, EarningsWhisper.com places the fourth-quarter whisper number at $1.48 per share, five cents better than the consensus.
The enthusiasm ends there, however. According to data from Thomson/First Call, Walmart stock has earned just four buy ratings, compared to 23 holds and two sell ratings. Additionally, the 12-month consensus price-target of $63 represents a discount to the Walmart stock price Friday close at $66.18 per share.
Options traders, meanwhile, appear to be a bit more optimistic. Currently, the February/March put/call open interest ratio for Walmart stock rests at 0.61, with calls nearly doubling puts among options set to expire within the next two months. This ratio rises slightly to 0.66 when we look at just February’s open interest configuration, indicating a healthy bump in skepticism ahead of Walmart’s earnings.
Click to Enlarge Overall, February implieds are pricing in a potential post-earnings move of about 4% for Walmart stock. This places the upper bound at $68.83, while the lower bound lies at $63.53. Walmart stock could bring technical buyers back to the table this week, as the shares are poised to close above their 200-day moving average for the first time in nearly a year. Meanwhile, downside technical support lies at $65 in the form of WMT’s 20-day moving average.
2 Trades for WMT Stock
Call Spread: With the bar set low for Walmart earnings, there is plenty of opportunity for the company to offer up an earnings surprise. As such, traders looking to bet bullish on Walmart stock ahead of earnings may want to consider a March $67.50/$70 bull call spread.
At last check, this spread was offered at 85 cents, or $85 per pair of contracts. Breakeven lies at $68.35, while a maximum profit of $1.65, or $165 per pair of contracts, is possible if Walmart stock closes at or above $70 when March options expire.
Puts Sell: With market volatility being what it is, there is the possibility for Walmart stock to consolidate over the short term or even decline slightly if guidance is a bit on the light side. In this case, a February $60.50 put sell may make sense. At last check, this put was bid at 21 cents, or $21 per contract.
On the upside, you keep the premium received as long as Walmart stock closes above $60.50 when February options expire at the end of this week. On the downside, should WMT trade below the sold strike ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $60.50 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
