Citigroup Cops to a 'Big Mistake' on This Dow Stock

Short-term options traders have rarely been more put-heavy on WMT in the past year

Managing Editor
Dec 19, 2017 at 9:40 AM
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Superstore stock Wal-Mart Stores, Inc. (NYSE:WMT) is moving higher this morning, after Citigroup upgraded the shares to "buy" from "neutral," and raised its price target to $117 from $106. In a note to clients, Citi said it was "a big mistake" to stay on the WMT sidelines in 2017, but thinks there's more upside to come in 2018, particularly with rivals like Costco (COST) and Home Depot (HD) trading at premiums to Wal-Mart shares.

Today's mea culpa from Citigroup is a relatively rare bullish note for WMT. Currently, the retail giant carries 14 "hold" or "strong sell" ratings, compared to just 10 "strong buys." What's more, the stock's average 12-month price target checks in at $100.73.

WMT is up 1.5% at $99.40 in early trading, with the shares rallying from a recent pullback to their rising 20-day moving average, and extending their year-to-date gain to about 44%. The Dow component has been consolidating some gains since tapping a new record peak of $100.10 on Nov. 17.

In the options pits, Wal-Mart stock sports a Schaeffer's put/call open interest ratio (SOIR) of 1.22, which ranks higher than 86% of all other readings from the past year. This indicates that short-term options traders have rarely been more put-heavy on WMT stock in the last 12 months.Given the equity's stellar performance this year, it's possible that some of these open puts were purchased as hedges by those holding Wal-Mart shares.

That said, WMT has emerged as a particularly rewarding target for those looking to buy premium. The equity's Schaeffer's Volatility Scorecard (SVS) of 99 suggests the retail concern has consistently rewarded option buyers over the past year by making bigger-than-expected price swings than its options have priced in.


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