It’s time for Walmart Inc (NYSE:WMT) investors to cheer up!! A “smiley face” situation has arrived on the Walmart stock chart; which smart shoppers can buy into with less risk while receiving ‘store credit’ from WMT’s options market. Let me explain.
A mixed profit report for Walmart stock last month turned downright nasty as investors opted to devour the worst items, while shelving any of the good stuff delivered as part of its quarterly results. In the immediate aftermath shares of WMT finished down by 10%.
Behind the scorn, amplified attention was paid to modestly reduced fiscal year guidance. At the same time, a sales beat, better-than-forecast revenue growth and a confident message from management failed to enjoy any respect from anxious sellers that trumped would-be buyers of Walmart stock.
And depending on whom one asks, the situation has only gotten worse in Walmart stock.
Since the initial earnings reaction, WMT’s discount bin status has become more visible with shares falling an additional 6% over the last couple weeks. The good news is after all the returning of Walmart stock merchandise, shopping the drop now takes on the characteristics of a smiley face situation on and off the price chart as I’ll discuss below.
Walmart Stock Daily Chart
Technically, the current situation in Walmart stock may be a bit too cute to hold up. I’m referring to WMT’s tight inside doji pattern nestled right on top of the 200-day simple moving average. The cynic in me finds the set up a bit too appealing and quaint to work like something out of Edwards & Magee.
Don’t get me wrong though. I believe a bottom is close at hand following Walmart’s 21% corrective move. However, whether it plays out as a textbook low or one in which there’s one more flush before moving higher, I don’t know. But shares are ultimately expected to rally.
Of course, with no price guarantees of an even cheaper Walmart stock around the corner; a strategic alliance using a limited risk call and put combination makes added sense while receiving a bit of ‘store credit’ for the effort.
Walmart Stock Moderately Bullish Spread Combination
Reviewing WMT stock’s options market, one shorter-term positioning idea involves combining a bull put spread and moderately bullish long call butterfly. The net result is a credit position without immediate downside risk and limited, but nice size profit potential on the upside if Walmart rallies.
Specifically and with shares at $87.98, selling the April $85/$82.50 put spread and buying the April $90/$92.50/$95 call butterfly is priced for a small credit of 15 cents.
At expiration, this position allows for some sort of profit from $84.85 to $95.15, with a max capture of $2.65 at $92.50. Above $95 and the trader receives the modest 15 cent credit. And below $85? If Walmart stock finds itself the victim of further price cuts — a max loss of $2.35 is a price guarantee that should put a smiley face on those investors versus their stock counterparts.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities 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 and StockTwits.
