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Walmart Is a Bastion of Stability Amid the Volatility

Market volatility has some investors spooked this week. Ominous-sounding headlines about the delta coronavirus variant have fear on the rise, and traders quick to smash the sell button. If you’re tired of the drama and want a more stable way to play, I suggest taking a good look at Walmart (NYSE:WMT) stock.

Walmart (WMT) sign on front of Walmart store at sundown
Source: fotomak /

The retail giant offers a low beta and market-beating dividend.

Most importantly, WMT stock hasn’t budged an inch over the past week, even as equities elsewhere have plunged.

The relative strength isn’t uncommon during downturns. Indeed, the entire consumer staples sector is famous for its muscle-flexing when bears attack.

Walmart isn’t the only constituent holding firm. Pepsi (NYSE:PEP), Coca-Cola (NYSE:KO), and Proctor & Gamble (NYSE:PG), among others, are also climbing.

Momentum junkies quick to pass on trade ideas in the consumer staples space shouldn’t be too hasty. We can use options to juice up the leverage and create a compelling return on investment. I’ll share my preferred play below.

But first, let’s break down the WMT stock chart.

WMT Stock Charts

Walmart (WMT) stock weekly chart with looming breakout
Source: The thinkorswim® platform from TD Ameritrade

Don’t let the year-to-date loss of 3% and the recent months of chop fool you. Walmart shares have more than doubled over the past five years, so there’s definitely been a growth component to the company. Its weekly chart shows a steadily climbing 50-week moving average. The 20-week moving average also just turned higher and is backing buyers.

As long as the $134.40 pivot low holds, the weekly trend will remain bullish.

Resistance at $143 is keeping a lid on prices for now. However, breaking above it will provide an entry point for buyers looking for a reason to pounce. As you’ll see on the daily chart, we aren’t far off, suggesting a trigger could be imminent.

Over the past four months, a trading range has developed between $135 and $143. The churn has gone on long enough to turn both the 200-day and 50-day moving averages sideways, confirming the overall neutral tone.

We have seen a few higher pivot lows form over the past month, so buyers are getting more aggressive beneath the surface. This supports the forecast that an upside breakout is looming. Importantly, we haven’t seen much by way of distribution signs, so sellers have lacked teeth this month.

Walmart (WMT) daily stock chart with trading range
Source: The thinkorswim® platform from TD Ameritrade

Both the weekly and daily time frames support a neutral to mildly bullish bias moving forward. I have just the options strategy for this scenario.

A Smart Options Trade

The final piece to selecting the optimal strategy for Walmart is implied volatility. This measure reveals whether options premiums are cheap or expensive. WMT boasts an implied volatility rank of 23%, which puts it in the lower quartile of its one-year range. The takeaway is that premiums are indeed low, and we should buy them.

Bull call diagonal spreads offer the ability to profit if the stock treads water or climbs from here.

The Trade: Buy the September $135 call while selling the August $146 call for a net debit of $6.90.

In modeling the trade with a risk graph, we can forecast the estimated profit potential. If WMT stock remains at $142 through August expiration, you will make about 85 cents per share, yielding a 12% return. If prices rise to $146 and beyond, the profit climbs to approximately $4, yielding a juicy 58% return.

The max loss is $690, but you can minimize the damage by exiting if the stock breaks below the $138 support zone.

On the date of publication, Tyler Craig was LONG WMT. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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