Walmart (WMT) – Always low prices?

Company Description

The company engages in the retail and wholesale operations in various formats worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam’s Club. It operates supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, discount stores, drugstores, and convenience stores; membership-only warehouse clubs; e-commerce Websites, such as walmart.com, jet.com, shoes.com, and samsclub.com; and mobile commerce applications.

The company offers grocery products, including meat, produce, natural and organics, deli and bakery, dairy, frozen foods, alcoholic and nonalcoholic beverages, floral and dry grocery, as well as consumables, such as health and beauty aids, baby products, household chemicals, paper goods, and pet supplies; and health and wellness products.

It also provides electronics, cameras and supplies, photo processing services, wireless, movies, music, video games, and books; stationery, automotive, hardware and paint, sporting goods, and outdoor living and horticulture; apparel for women, girls, men, boys, and infants, as well as shoes, jewelry, and accessories; and home furnishings, housewares and small appliances, bedding, home decor, toys, fabrics, crafts, and seasonal merchandise, as well as brand name merchandise.

In addition, the company offers fuel and financial services and related products, including money orders, prepaid cards, wire and money transfers, check cashing, and bill payment.

It operates approximately 11,300 stores and various e-commerce Websites under the 58 banners in 27 countries. The company was formerly known as Wal-Mart Stores, Inc. and changed its name to Walmart Inc. in February 2018. Walmart Inc. was founded in 1945 and is based in Bentonville, Arkansas.

Charts

WMT vs INDU 1Y Performance Chart
WMT Price Chart
Daily OHLC Chart (1Y)

Option Pricing

  • Implied Volatility (expected price movement) for short-dated options is 18%
  • Realized Volatility (historic price movement) for short-dated options is 16%
  • Implied Volatility Percentile for short-dated options is 19%

Trade Idea

WMT stock closed at $106.06 on Friday, which also marks its 52-week high. The Dow Jones Industry Average Index (INDU) component has a market capitalization of $303B. The stock reports a 0.6 Beta vs SPX. Realized volatility (1Y) stands at 22.3% The stock has bested both the INDU (+25%) and SPX (+23%) over a 1Y timeframe.

Shares have been gaining momentum on robust comparable store sales and strong execution on corporate strategy. The company maintains relentless expansion efforts and posts strong e-commerce performance. To add, Walmart is trying every means to evolve with the changing consumer environment to compete with brick-and-mortar rivals and e-Commerce behemoths. To date, this is well received by investors.

If I were looking to add long deltas to my portfolio, I would be inclined to take a bullish position in WMT. The stock has been a strong performer over a 1Y timeframe besting both the INDU and SPX.

WMT is considered a defensive name and reports a Beta vs SPX of 0.6. With current momentum and overall market sentiment, WMT may be able to keep outperforming the broader market on a risk-adjusted basis.

With the stock near 52-week highs, and the options market offering seemingly cheap options, it may make sense to participate to the upside in a simple risk defined way. For example:

SideQtyExpStrikeType
Buy126 JUL107Call

Break-even on July expiration:

  • Strike price of $107 plus the cost of the call $2.61. Which makes $109.61 the break-even point for July expiration.

  • Risk is limited to the premium paid for the call option.

  • There’s a theoretically unlimited profit potential, if the stock goes to infinity. We haven’t seen that happen before 🙂 
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