WMT Options: Buying Walmart Call Options on Strong Holiday Trend

It is a beautiful Monday morning and I am glad to be back to options trading after the long weekend. Black Friday was a great opportunity to snag up goods from retailers at a discount and the shopping spree continues today as we experience another Cyber Monday. Many Americans, especially the bargain hunters took advantage of the discounts offered by retailers last Friday; hence, I think it might be smart to start our options trading week with an exploration of retail stocks today.

We will start the series on retail stocks by checking out Wal-Mart Stores, Inc. (NYSE:WMT). Walmart with its market capitalization of $279.46B operates retail and other stores in various formats, including membership clubs. The Company operates through three business segments: Walmart U.S., Walmart International and Sam’s Club. The company sells practically everything produced by heavily-branded companies in the United States and it has developed a strong brand as a brand retailer.

Why We Are Looking at WMT Options Today

Shares of Walmart caught my attention last Friday after the stock made a new 52-Week high to $88.09. The stock is trading down slightly today with a 0.83% decline to $86.81 as at 11:03AM EST; nonetheless, the fundamentals that led the stock to the new 52-Week high remain strong.

WMT Calls

Shares of Walmart stores have outperformed the broader market in the last three months as the chart above shows. You will observe that the S&P 500 is up 2.47% in the last three months while the shares of Walmart are up an impressive 14.53%. It is no longer news that the holiday season is traditionally a time of increased profitability for retailers; hence, we can safely expect the bullish trend to continue for Walmart at least until March 2015.

The second reason I am optimistic about the fortunes of Walmart going forward is the impressive Thanksgiving sales that the company reported. Earlier last week, analysts at Guggenheim Partners have opined that some $6B will be available for consumers for spend this holiday season and the economic outlook continues to improve. Interestingly, Walmart’s vantage position in the retail industry suggests that the company will be able to command a significant part of this $6B.

The third reason I am optimistic about Walmart going forward is the growing might of its ecommerce division. In the third quarter, the company reports that its ecommerce sales increased by 21% on a constant currency basis after the company has earlier reported a 24% growth in ecommerce sales in the second quarter.

In the just concluded Black Friday sales, Walmart reported that 25 million people downloaded its Black Friday ad while some 20 million others used local store map on the company’s website. The company also reports that the last Black Friday was its second biggest day of online sales ever, coming second to last year’s Cyber Monday’s sales.

Critics are usually very quick to tout Walmart’s traditional brick and mortal history as a potential drawback for the sustainability of the company’s market dominance in this interconnected information-driven age. However, Walmart is rapidly evolving to become a strong player in the ecommerce space and this effectively silences every doubt about the company’s market dominance.

How to Trade WMT Options

I am bullish on Walmart and I recommend buying Walmart call options even as we expect the current bullish trend to continue until February. The WMT Mar 2015 87.500 call (WMT150320C00087500) looks particularly attractive to me at an asking price of $2.02 and I think we can still milk out profits from the contract before shares of Walmart rises up to $89.52.

 

— Daily Option Alerts

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