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Pre-Earnings Option Bulls Turn Out on Wal-Mart Stores, Inc. (WMT)

Wal-Mart Stores, Inc.'s May 80 call is being bought to open today

by 4/17/2014 11:15 AM
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Option Brief: Wal-Mart Stores, Inc. (NYSE:WMT) has spent most of the past year bouncing between $73 and $80, translating into a roughly 1.5% 52-week loss. This hasn't deterred today's option traders from betting on a breakout over the next four-plus weeks -- a time frame which includes the company's quarterly earnings report.

With roughly two hours under the belt in today's trading, around 14,000 WMT calls have crossed the tape, or more than four times the intraday average. The majority of this volume has centered on WMT's May 80 call, where a healthy portion of the 10,479 calls traded have done so at the ask price, pointing to buyer-driven activity. Meanwhile, implied volatility is higher, suggesting the initiation of new positions -- a theory echoed by Trade-Alert and data from the International Securities Exchange (ISE).

The volume-weighted average price (VWAP) for the calls is $0.23, making breakeven at the close on Friday, May 16, when the options expire, $80.23 (strike plus the VWAP). This mark sits roughly 1.4% below WMT's record peak of $81.37, tagged last December. Should WMT fail to muscle its way north of the round-number $80 level ahead of expiration, the most the speculators stand to lose is the initial cash outlay. However, WMT's Schaeffer's Volatility Index (SVI) of 14% ranks in the 35th percentile of its annual range, suggesting the stock's short-term options are attractively priced, from a volatility perspective.

If today's call buyers are eyeing the company's impending earnings report -- scheduled for Thursday, May 15 -- history is not in their favor. Despite besting consensus bottom-line estimates in six of the past eight quarters, WMT averages a loss of 0.9% in the subsequent session. In today's session, though, Wal-Mart Stores, Inc. (NYSE:WMT) is edging its way closer to the $80 level. At last check, the stock was up 0.3% to trade at $77.45, following reports that it will llaunch a store-to-store money transfer service later this month.


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