Walmart Option Traders Betting on a Turnaround

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Walmart Option Traders Betting on a Turnaround

Following the company’s results report last month, investors have lately pushed down the share price of Walmart Inc. (WMT). The company’s stock may potentially be suffering from recent equities market volatility, which has been exacerbated by lingering concerns over the omicron form of COVID-19. Furthermore, growing prices and an increase in the value of the dollar may make the cheap shop a less appealing investment.

Option traders seem to perceive value in Walmart shares, as they appear to be positioning themselves for a rise in the share price in the short future. Walmart stock, as a top holding in State Street’s Consumer Staples Sector ETF (XLP), could be viewed by option traders as standing to benefit from rising inflation, where investors may seek the relative safety of established large-cap stocks, particularly in sectors that perform better than others during times of inflation.

Consider how the open interest for Walmart favors calls over puts, and how the implied volatility built into those prices indicates that traders are buying options and selling calls.

Key Takeaways

  • Since the store published profits in mid-November, Walmart stock has been steadily declining.
  • At first look, the open interest seems bullish, and this view is confirmed following deeper investigation.
  • Walmart’s stock price just slipped below its 20-day moving average.
  • Call options continue to be more expensive than puts.
  • Support and resistance levels depending on volatility allow for a greater move to the upside.

By combining technical analysis of share price action with an examination of recent option activity, chart watchers may acquire useful information into the general mood toward Walmart stock. The chart below shows the most recent movement in the Walmart share price as of Tuesday, December 21.

Chart Analysis

This graph displays Walmart’s pricing movement over the previous three months. Every candle symbolizes a single trading day. The blue lines represent a historical volatility range formed by 20-day Keltner Channel indicators, depicting price levels that are multiples of the average true range (ATR) for Walmart stock. ATR is a common technique for displaying historical volatility over time. Over the last month, the outside bands of the historical volatility range have widened. This means that traders have found it difficult to agree on a fair valuation for Walmart shares during this time period.

From the left-hand side of the chart, Walmart stock was in a firm downward trend until the beginning of October, illustrated by the red arrow. This helps to highlight the way that Walmart stock traded consistently below its 20-day moving average, before finally falling to an extreme low of the volatility range.

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This extreme low then marked a turnaround point for Walmart, as the stock then rallied for the next month, highlighted by the green arrow. During this time, Walmart stock rose above its 20-day moving average and closed at an extreme high of the volatility range, just below all-time highs for Walmart stock.

This point also marked the beginning of the most recent downward trend. Despite brief periods of upward momentum, Walmart stock has recently been establishing both lower highs and lower lows. The Walmart share price is in a wide downward channel, highlighted in blue. During this time, the volatility bands have expanded the most.

In the past month, the highest Walmart share price was $147.88 in late November, highlighted by the green balloon. Conversely, the lowest share price during this time was $135.24 just a few days later, in early December, highlighted by the red balloon.

Walmart’s stock price has dropped 3.5% throughout this time period. For instance, State Street’s S&P 500 Index ETF (SPY), which might be a gauge for the overall health of the market, lost 0.96%. Walmart has also lagged behind XLP, which has gained 2.7% in the last month. Walmart accounted for 9% of XLP’s total holdings.


The Keltner Channel indicator shows a series of semi-parallel lines based on a 20-day simple moving average, as well as an upper and lower line. Because the higher lines are produced by adding a multiple of ATR to the average price and the lower lines are drawn by subtracting a multiple of ATR from the average price, this channel indicator is an ideal visualization tool for displaying historical volatility.

Option Analysis

Recent Walmart option trading volumes have favored calls over puts. On Tuesday, December 21, approximately 40,000 calls were exchanged for every 14,000 puts. This is an almost 3-to-1 ratio, which seems to be quite optimistic. Trading volumes, however, only convey half of the tale.

An examination of a stock’s open interest might give further context for option traders’ opinion. Walmart now has 441,000 calls against 266,000 puts in open interest. While recent trading volumes have been quite positive, these open interest numbers show that option traders have a more moderate perspective on Walmart’s share price. However, open interest numbers, like trading volumes, need more study to give deeper insights into option trader attitude.

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The single option having the most open interest for January 21, the next monthly option expiry date, is the $150 call option, with 26,400. This is a 7% increase over Walmart’s current share price. Furthermore, calls outweigh puts by approximately 2-to-1 for this expiry date.

Implied volatility is a crucial indicator of option trader attitude in open interest. In the case of options expiring on December 23, implied volatility indicates that traders are selling puts and buying calls. This is because open interest in put options is increasing while implied volatility is decreasing, indicating that traders are selling more contracts on short positions in the option. In contrast, open interest in call options is increasing while implied volatility is increasing, suggesting that traders are adding to long bets in the option.

There are roughly equal numbers of calls and puts when at-the-money options and one strike in each direction up or down the option chain are included. This is significant because these strikes may indicate more actual price action based on current share prices, as opposed to far out-of-the-money options, which may have figures distorted by speculators and option sellers receiving premium.

While call options are more prevalent in Walmart open interest, overall option open interest is decreasing. Total open interest has declined by 19% in the last five days. Walmart had more open interest 87% of the time in the past year, based on the 52-week average of Walmart open interest. This suggests that there is less demand for trade and carry positions at Walmart.

Macro Factors

Several factors have contributed to the current sustained volatility in the markets. While investors may be concerned about the long-term impacts of COVID-19’s omicron version, the threat of inflation cannot be overlooked. In November, inflation increased at its quickest rate since 1982, according to the most current consumer price index figures.

The Federal Reserve has lately adopted a more hawkish attitude in order to battle inflation. The Fed has announced plans to increase the reduction of monthly bond asset purchases. The Fed also anticipated that, in order to further reduce inflation, it would hike interest rates up to three times in 2022.

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The prospect of interest rate rises has lately roiled markets, as investors seek relative safe havens to store their money. As inflation reduces the purchasing power of the dollar for consumers, investors shift their funds to less risky and maybe more vital areas.

Utilities, real estate, financials, and consumer staples are all considered relative “safe havens” amid inflation. Walmart is one of the most valuable companies in the consumer staples industry. The chart below compares Walmart stock’s recent performance to the US Dollar Index (DXY), State Street’s Consumer Staples Sector ETF (XLP), and The Procter & Gamble Company (PG), which is XLP’s biggest investment.

It’s worth noting that as DXY has increased and inflation worries have intensified, so have Procter & Gamble and XLP. Walmart, on the other hand, lags behind all of these stocks. Option traders may be hoping that Walmart stock’s current negative trend will reverse and it will effectively “catch up” with its industry as investors seek safer ground.

These support and resistance levels demonstrate a wide variety of price support and resistance. As a consequence, any unexpectedly positive or unfavorable news might take investors off guard and result in an abnormally significant shift. Walmart shares declined 1.5% the day after the prior earnings report and proceeded to decrease the following week, closing below the 20-day moving average for many weeks. Investors may not anticipate the same type of price movement after this news. With so much opportunity for movement in the volatility range, share prices may increase or fall more than predicted.

Market Impact

Walmart has lost 3.5% in the last month as investors continue to be concerned about inflation and the omicron form of COVID-19. Option traders seem to be preparing for Walmart’s recent downward trend to reverse, as open interest indicates that more option traders are purchasing calls than puts. Option traders may anticipate potential for the Walmart share price from here as investors continue to shift towards defensive sectors to escape the effects of inflation.

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