Wal-Mart Stores Inc (NYSE:WMT) shares are flying high this morning on the heels of an upgrade by Citigroup. WMT stock jumped some 1.5% in pre-market trading and currently rests at a 90 basis-point gain.
While the rally may come as a surprise to any short sellers, traders who’ve paid any attention to the recent price action were already expecting additional upside.
Technical analysis purists would contend a breakout was coming anyway. The upgrade simply provides a catalyst for speeding up this eventuality.
There’s no doubt WMT has benefited from the bullish fever gripping stocks this year. With two weeks to go, the ubiquitous retailer is closing in on a 45% gain for 2017. Currently, Walmart is trading above a rising 200-day, 50-day and 20-day moving average.
Since pole-vaulting higher on earnings, WMT has spent the past months in digestion mode. The sideways slithering has allowed overbought pressures to ease and the 20-day moving to catch up.
And that made today the perfect time for the stock to resume its uptrend. Consider the upgrade a delightful surprise providing a jump start to what could be a nice year-end run.
On the implied volatility front, things are getting uppity. The implied volatility rank is nestled close to 50% which means we’re nearing the upper half of the one-year range. Option premiums now boast enough juice to make them worth selling.
Pick Your WMT Stock Trade
To capitalize on continued strength here are two trades to consider. The first promises a higher potential payout, but a lower probability that you’ll capture it. The second carries a lower potential payout, but a higher probability of winning.
WMT Bull Call: Buy the Feb $100/$105 bull call spread for $1.50. The risk is limited to the initial $1.50 cost and will be lost if the stock sits below $100 at expiration. The max reward is $3.50.
WMT Bull Put: Sell the Feb $95/$90 bull put spread for 79 cents. The initial 75 premium received represents the max reward and will be captured if the stock sits above $95 at expiration. The potential loss stands at $4.21, but you can minimize it by exiting if WMT falls to the short put strike at $95.
At the time of this writing, Tyler Craig didn’t hold any positions in any of the aforementioned securities.