Wal-Mart's Latest Swipe at Amazon Sparks Heavy Options Flow

Walmart's Mobile Express Returns app hopes to allow online customers to quickly return items in stores

Oct 9, 2017 at 2:30 PM
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Wal-Mart Stores Inc (NYSE:WMT) shares are up 2.7% at $81.13, at the top of the Dow, after the retailer unveiled its Mobile Express Returns app, which will allow customers to quickly return items bought online in Walmart stores -- the latest in a string of swipes at rival Amazon (AMZN). Plus, Barron's waxed optimistic on Wal-Mart over the weekend, saying the stock could rise "another 15% or more over the next year." Against this backdrop, WMT options volume is soaring, with one trader eyeing even bigger gains.

At last check, around 40,000 calls and 32,000 puts had traded on Wal-Mart -- four times what's typically seen at this point in the day, and total options volume pacing in the 98th annual percentile. Most notable is a block of 5,000 January 2018 77.50-strike puts that were sold to open for $1.95 apiece, and appear to be tied to 2,500 January 2018 80-strike calls that were likely bought to open for $2.90 each.

If this is the case, the options trader pocketed a net credit of $1.00 for the spread [($1.95 * 2) - $2.90], which they can keep as long as WMT stays above $77.50 through expiration at the close on Friday, Jan. 19, 2018. Profit, meanwhile, will accumulate on an extended rally above $80, thanks to the bought call.

This bullish bias is nothing new for Wal-Mart options traders. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 23,968 calls in the past 10 days, compared to 12,152 puts. The resultant call/put volume ratio of 1.97 ranks in the 80th annual percentile, pointing to an unusual demand for long calls over puts.

Drilling down, the weekly 10/13 80-strike call has seen the biggest rise in open interest over the past two weeks, with 10,418 contracts added. According to Trade-Alert, the bulk of these calls were bought to open last Tuesday for a volume-weighted average price of $1.41 apiece. With today's surge, the bid price for the calls has jumped to $1.96, meaning the call buyers are already staring at paper profits.

Looking at the charts, today's positive price action is just more of the same for WMT stock, which has added more than 24% since its late-January lows near $65.30. Underscoring the equity's 2017 advance has been its 120-day moving average, with a recent bounce off here putting the shares within striking distance of their Aug. 9 two-year high of $81.99. The stock could be poised to make a major move tomorrow, too, when Wal-Mart hosts its annual investor day.

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