Call Buying Rises to Extreme Levels on Walmart Stock

WMT shares haven't closed below their 20-day moving average in two months

Sep 5, 2018 at 10:24 AM
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Walmart Inc (NYSE:WMT) last month gapped higher thanks to the retail giant's impressive quarterly results, and while it's pulled back some since the post-earnings peak of $100.21, it remains above the 20-day moving average, a trendline it hasn't breached on a closing basis since early July. Meanwhile, analysts and options traders foresee more upside ahead for WMT stock.

Just this morning Barclays reinstated coverage on the Dow component with a bullish "overweight" rating, and it set a price target of $110 -- pennies above the equity's January all-time high of $109.98. The brokerage firm cited continued strength from the retailer's e-commerce investments as the primary reason for its optimism. Still, most covering analysts remain skeptical on the stock, with the majority handing out tepid "hold" recommendations.

Options traders, though, have been buying calls at a rapid pace. Walmart's 10-day call/put volume ratio of 7.03 across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands as an annual high, showing an extreme in call buying over put buying. Confirming this unusual call bias, the Schaeffer's put/call open interesting (SOIR) of 0.41 sits at an annual low, showing near-term options traders are more call-skewed than any point in the past year.

Indeed, the 10 largest increases in open interest during the past two weeks all belong to call options, with the November 100 call in the lead by a mile. The weekly 9/7 95- and 96-strike calls were also on the list, with buy-to-open activity spotted at both contracts, meaning traders expect WMT shares to keep pushing higher by week's end, when the weeklies expire.

Overall, it's seemingly an attractive time to target near-term options on the security, based on its Schaeffer's Volatility Index (SVI) of 15%, just 4 percentage points from an annual low, indicating low volatility expectations for short-term contracts. The stock was last seen trading up 0.2% at $95.58.


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