Dow 30 Coverage: Walmart Trade Recommendation

Previous Trade Recommendation (May 29, 2018):

  • Buy the $82.50, June 15 straddle for a debit of $2.70 – $2.80 ($1.42 for the call and $1.36 for the put as of May 25 bid-ask midpoint).
  • The minimum target of the trade was obtained by selling the options once WMT touches either $80 or $85. Today, the stock pushed 3% higher, closing at $85.42.
  • Given the significance of the 50 SMA (yellow line in Figure 1) and the options’ expiry (June 15), both options are to be closed out.

Figure 1. WMT Daily Chart

Closing out Trade #1

  • Sell both options for a credit of $3.40 ($3.20 for the call and $0.20 for the put – Figure 2) for a 21% gain over a 7-day period.

Figure 2. WMT Option Chain June 15, 2018

Technical Developments 

  • The stock found support at the $82 mark again on May 29 (purple arrow in Figure 1).
  • Today (June 4), the stock closed above $85 (violet horizontal trendline). Also, the stock moved beyond the neckline of a small inverse H&S pattern (lows – bright blue ellipses, neckline – bright blue trendline). Such subtle patterns often provide significant clues to a change in trend.
  • The 50 SMA (yellow line), which served as resistance on three occasions in April and May (yellow arrows) is at $85.70. The stock is expected to at least retest the moving average over the next couple of sessions. Only a close above the moving average would give a buy signal.

New Trade Recommendation

  • Buy the stock upon a close above the 50 SMA (currently at $85.70).
  • Stop: A close below $82 (white horizontal trendline in Figure 1).
  • Target: Half at $90 (upon a retest of the previous long-term support – green trendline). Half at $102 (upon closing the large down-gap from February).

Disclosure:

No position but may go long the stock as per the recommendation guidelines (i.e. once the stock closes above its 50 SMA).

Featured image courtesy of Shutterstock.

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http://www.linkedin.com/in/konstantindimov