Wal-Mart Stores, Inc. (WMT) 'Pincer Move' Draws Put Players

Wal-Mart Stores, Inc. (NYSE:WMT) purchased Jet.com for $3 billion

Aug 8, 2016 at 1:14 PM
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Call volume has been accelerated on Wal-Mart Stores, Inc. (NYSE:WMT) in recent weeks, per data from the major options exchanges. However, with WMT stock down 0.7% to trade at $73.24 as traders digest confirmation of the retailer's historic acquisition of Jet.com -- a purchase CNBC's Jim Cramer is calling "a pincer move on Amazon" -- WMT put options are outpacing call options by a healthy margin.

By the numbers, 8,857 puts have changed hands so far, compared to 6,463 calls. Receiving notable attention are WMT's August 68 and 70 puts, where it looks like some of the activity is a result of one trader initiating a bull put spread -- a theory echoed by data from the International Securities Exchange (ISE). In other words, the speculator is betting on WMT staying north of $70 through front-month expiration at next Friday's close, but is hedging her risk with the purchased put.

More broadly speaking, options traders have taken a more traditional bullish approach to WMT of late. At the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio has jumped to 2.28 from 0.63 over the past two weeks. Plus, the current ratio ranks in the 75th annual percentile, meaning calls have been bought to open over puts at a faster-than-usual clip.

Echoing this call-heavy backdrop is WMT's gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 0.30. Simply stated, near-the-money calls more than triple puts among options set to expire in three months or less.

Outside of the options arena, though, sentiment among the brokerage bunch is decidedly less optimistic. Of the 19 brokerages covering WMT, 15 maintain a "hold" or "strong sell" suggestion, while the average 12-month price target of $69.72 stands at a discount to the stock's current price.

This leaves ample room for upgrades and/or price-target hikes -- which could create a fresh burst of buying power -- should WMT resume its longer-term uptrend. In fact, since bottoming at its most recent low of $62.72 in mid-May, the shares of Wal-Mart Stores, Inc. (NYSE:WMT) have surged 16.7%, and hit a record high of $74.35 on July 11.

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