Bearish Options Traders Take Action Ahead of Wal-Mart Earnings

Options traders have been decidedly bearish on WMT stock

Managing Editor
Aug 16, 2017 at 2:39 PM
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Retail giant Wal-Mart Stores Inc (NYSE:WMT) is set to report second-quarter earnings tomorrow morning. Investors are keeping an eye trained on the retail stock, which has historically had success in post-earnings sessions. Below, we will break down WMT stock's post-earnings history, and examine how options traders are playing the retailer.

The blue chip has averaged a one-day move in either direction of 3.8% in the session following its last eight earnings releases. Furthermore, this move has been positive five of the last eight times. Back in May, WMT stock gained 3.2% following its earnings release, and this time around, the options market is pricing in an even bigger 5.6% swing for tomorrow's session. 

Staying in the options pits, put buying has been more popular than usual leading up to the quarterly event. This is evidenced by the security's 10-day put/call volume ratio of 1.13 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Not only does this show put buying has outpaced call buying during the past two weeks, but it ranks in the bearish 73rd annual percentile. 

In addition, puts are flying off the shelves again today, trading at four times the pace expected and topping call volume in the process. This is due to one trader who seemingly closed his position of 5,000 August 80 puts to open a similar block of September 80 puts -- rolling out his bearish position to give Walmart shares more time to breach the $80 level. 

The retail stock, which is currently up 0.2% to trade at $80.91, is flirting with its annual high of $81.99, which it touched on Aug. 9. The equity has been trading comfortably above its 40-day moving average since a bull gap in late July, while sporting a 17% year-to-date lead.

Despite the solid technicals, analysts remain skeptical. Of the 22 brokerages covering WMT stock, half rate it a "hold" or worse. Plus, short interest is at a roughly six-year high, and it would take six days to repurchase all of those pessimistic positions, at Wal-Mart's average daily trading volume. 

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