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Options Trading: Wal-Mart Put Players Bet on Weekly Decline


WMT put traders flock to October strikes.

Options bears are taking Wal-Mart Stores, Inc. (NYSE:WMT) by storm today, as roughly 13,000 puts -- more than two times the intraday norm -- have crossed the tape thus far. By comparison, just 5,917 calls have been exchanged.

The lion's share of today's put activity can be traced to the front-month series of options, with the October 73.50 strike garnering the most action. Here, about 4,500 puts -- including an open sweep of 2,350 contracts -- have changed hands for a volume-weighted average price (VWAP) of $0.55. Almost all of the positions went off at the ask price, suggesting they were purchased. Plus, implied volatility at the strike has jumped 5.8 percentage points, and volume exceeds current open interest levels, pointing to the initiation of fresh long put positions. What's more, data from the International Securities Exchange (ISE) confirms that much of this activity is of the buy-to-open sort.

In order for today's put buyers to score a profit, WMT has to fall back into territory explored just three sessions earlier. Specifically, the stock has to slide beneath the breakeven rail of $72.95 (strike price minus the VWAP) by this Friday's close, when front-month options expire.

As of now, the option has about a 1-in-3 chance of moving into the money during its lifetime, according to its delta of negative 0.33. Although the odds are against them, today's put buyers only stand to lose the initial cash outlay per put, should WMT remain atop the $73.50 mark through the week's end.

On the charts, Wal-Mart is down 0.8% to trade at $74.25 this afternoon, ahead of tomorrow's 20th annual meeting for the investment community -- at which Wall Street can expect an overview of the super-retailer's strategies for the next fiscal year. Stepping back, the stock has been in a technical rut over the last five months, shaving off roughly 7% since tagging an all-time high of $79.96 on May 15.

This article by Milissa Hudepohl was originally published on Schaeffer's Investment Research.

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