Big Options Trades Abound on Wal-Mart Stores, Inc. (WMT)

A couple of huge bullish spreads have been initiated on Wal-Mart Stores, Inc. (WMT)

by Alex Eppstein

Published on May 11, 2016 at 3:12 PM

Dow component Wal-Mart Stores, Inc. (NYSE:WMT) is being pressured lower today by retail sector headwinds. All the while, the stock's options are trading at five times the expected intraday rate -- with a number of massive transactions fueling the activity.

According to Trade-Alert, one speculator initiated a long call spread at the September 70 and 72.50 strikes for a total cash outlay of $620,000 ($0.62 net debit * 10,000 contracts * 100 shares per contract). Her goal is for WMT to rally as high as $72.50 by September expiration. However, if the retail stock is sitting below $70 by the time the options expire, the trader risks losing the entirety of the initial outlay.

It also looks like a 1X2 call ratio spread is being initiated at the June 67.50 and 70 strikes. Each spread cost the options trader 38 cents, resulting in an initial payment of $190,000 (net debit * 5,000 contracts * 100 shares per contract). Unlike the long call spread -- in which the risk is limited -- potential losses are theoretically unlimited north of the upper strike, due to the naked calls.

Today's preference for WMT calls is out of the ordinary, relative to recent history. During the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 1.52 puts for every call -- a ratio that ranks just 5 percentage points from an annual peak.

These option bears are likely happy with what they're seeing today, as the stock is performing worse than all but two other Dow components. Specifically, WMT is down 2.8% at $66.40, along with a cluster of other retailers -- and amid news that the chain is suing Visa Inc (NYSE:V) over chip transactions.

Longer term, however, Wal-Mart Stores, Inc. (NYSE:WMT) has been steadily rising on the charts. In fact, since hitting a four-year low of $56.30 in mid-November, the retail stock has tacked on 18%. On top of that, it appears the shares have found a foothold at their 100-day moving average, which served as a springboard in mid-January. From a contrarian perspective, another bounce from this trendline could send option bears running, which could result in tailwinds.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.

A Schaeffer's exclusive

6 Sectors for Summer

Access your FREE insider report before it's too late!



NEW! Explore Schaeffer’s Partners' deals and get connected to top online brokerages with deals tailored exclusively for our readers.  Get answers to your questions regarding transfer fees, commission rates, programs and available discounts related to online trading services.

MORE | MARKETstories

The Latest Investor's Guide to Precious Metals
Learn how to protect savings and maximize returns by investing in precious metals.
Wall Street Reclaims Two Key Trendlines This Week
U.S.-China tensions and dire economic data still weigh, though
Dell Stock Jumps on Upbeat First Quarter
DELL announced an upbeat first-quarter report
The Latest Investor's Guide to Precious Metals
Learn how to protect savings and maximize returns by investing in precious metals.