Walmart (WMT) – Green Light Special

by CC August 20, 2018 3:49 pm • Trade Updates

10 days ago we previewed Walmart’s (WMT) Q2 results and detailed a bullish defined risk trade idea to take advantage of a breakout above 90 and a move back towards the round number of 100. Here was the trade idea, from August 10th:

WMT ($90.25) Buy Oct 90 / 100 call spread for $2.90

-Buy to open 1 Oct 90 call for $3.40

-Sell to open 1 Oct 100 call at 50 cents

This past Thursday, WMT reported better than expected earnings, revenues and same store sales growth. The stock immediately jumped 9% and touched 100. Over the next few trading days it has come in a bit and it’s worth checking in on a nice winner to decide what’s to be done next.

Today, with the stock 96.15 the trade is worth about 6.10, so a nice double and change. It’s is essentially trading at its intrinsic value (90 + 6.10 = 96.10) so decay isn’t really an issue here. Obviously if the stock goes higher it can be a really nice winner, worth up to $10. But we also don’t want to see the stock continue to fail over the next few weeks and see a nice trade turn into just an OK one.

There are a couple of ways to go about this. The easiest, not involving any adjustment now would be to simply keep a stop on the trade if the stock gets lower, perhaps using 95 in the stock as a place to close the trade while it still has a nice profit (the 95 level is fairly arbitrary and it’s just a way to put a mental stop in).The flipside is you would want to be patient if the stock took another run higher, perhaps closing the trade if/when it got back to 100.

As far as rolls there are always a couple of options. One that is interesting if 100 does seem to become an area the stock has a hard time getting above is to close the Oct 90 calls for a profit and roll them out to the December 100 calls, creating a Sept 100/Dec 100 call calendar. Right now that roll would result in a credit of 4.70, meaning it would book 1.80 in current profits, and leave potential for more if the stock were to climb back towards 100 before October expiration. (Sell the Oct 90 calls at 7.40, buy the Dec 100 calls for 2.70… that call calendar is currently trading about 1.40, this roll would own it for a credit, booking a good bit of current profits)

Obviously, even on the roll the higher the stock is when you do it the more profit can be booked, so there may not be a rush to do that roll if you think the stock will bounce after a couple down days since Thursday. But I like that roll for those looking to extend this trade out a few months and give a couple more ways to add to current profits, while booking a good portion of those now. After that roll the idea situation would be WMT moving back towards 100 and finding some resistance into October expiration, then rallying above 100 into year end.