Wal-Mart Stores Inc. (NYSE: WMT) shares are trading higher today after the retail giant announced that it will invest $649 million on 36 new outlets and a distribution center in Brazil. The stores will be built in various formats, including hypermarkets, supermarkets, and wholesale outlets focusing on low-income consumers. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on WMT.After hitting a one-year high of $51.44 in June, the stock hit a one-year low of $42.09 in September. WMT opened this morning at $45.27. So far today the stock has hit a low of $45.15 and a high of $45.95. As of 10:50, WMT is trading at $45.69, up 68 cents(1.5%). The chart for WMT looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $40 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in just 2 months as long as WMT is above $40 at January expiration. Wal-Mart would have to fall by more than 12% before we would start to lose money.
WMT hasn't been below $42 at all in the past year and has shown support around $42.50 recently. This trade could be risky if the holiday retail season is flat, but even if that happens, this stock could be protected by strong support WMT found around $42 over the past 3 months.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in WMT.
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Reader Comments (Page 1 of 1)
11-27-2007 @ 8:39PM
Daniel Beatty said...
I like to follow your recommendations but on this one I think the reward is too low for the risk. Yeah WMT has to fall 12% but in this market with what I feel is going to be a very lack luster holiday season that could very well happen.
Then again it could be my personal disdain of Walmart in general. Definitely not a store I like to visit, although their business practices are pretty shrewd to give the consumer the lowest price possible, I think their customer care... well... stinks and this will be their downfall. The beginning of the end and for a measly 4% with a two month hold on a company I do not like I will pass on this one.
11-28-2007 @ 2:04PM
Gr33ngurl said...
Daniel, I completely agree. When I hold a company like Walmart up against Target, for example, three things strike me: quality of stock performance, quality of products and quality of customer care. In all 3 categories, Target out performs Walmart.
It's funny that you say their "business practices are pretty shrewd." I would have agreed with you more about 3 - 5 years ago, but it seems to me that their PR missteps (employee heathcare, Chinese recalls, etc.) have them on the blacklist of a lot of American shoppers.
11-28-2007 @ 5:01PM
jt said...
get a life people,,,,you guys are so redundant.hold on ,i think someone just made another idiot comment.losers
11-28-2007 @ 5:09PM
jt said...
thanks for your concern,but my benefits are great...pay is great and stocks are doing well considering the markets.so thanks for the concern,but maybe you should concern yourselves with how your own lives suck,to spend so much time talking about a company you know nothing about....you are sheep...and probably believe we came from monkeys too.(laughs at you
11-28-2007 @ 5:16PM
jt said...
by the way gr33ngurl........you are kinda sexy..how old are you???later babe