One catalyst could push this stock higher in the near term. Here’s how to play it with options.
Walmart (NYSE: WMT) stepped up it’s game against Amazon (NASDAQ: AMZN) this week in launching its new Walmart+ subscription service.
Analysts have been eager for the subscription service’s arrival, hoping that it will help Walmart better compete against the mighty e-commerce giant Amazon, especially in key areas such as groceries as more shoppers buy food online amid the coronavirus pandemic.
While Walmart+ is priced below Amazon Prime, coming in at $98 per year compared with Prime’s $119, it also offers fewer features beyond free shipping – at least not yet.
Still, the debut of the new service pushed Walmart’s stock higher Tuesday, gaining more than 1%. And after bullish betting in Walmart’s options contracts earlier in the month, sentiment exploded to the upside on Tuesday.
“We saw calls outpace puts by more than 11-to-1,” said Optimize Advisors CIO Michael Khouw said. “One of the examples of activity that we saw were the September 25 weekly 148-strike calls. Those are the calls that are going to expire a week from this coming Friday. One of the buyers of those paid a little over $0.70 for about 1,000 of those.”
In other words, the buyer of those calls is betting that Walmart could move about 8% higher from Tuesday’s close by next Friday, pushing the stock back towards its highs from earlier in the month.
This buyer is also risking around just 0.5% of the current stock price to place that bet, limiting downside risk if Walmart’s stock fails to reach the expected level.
Options aside, former Walmart CEO Bill Simon says the Walmart+ subscription service may pave the way for the company’s online business to turn a profit.
“It’s something they’ve coveted for a long time,” Simon said. “What Walmart’s trying to do—and it’s been their secret sauce for many years, in particular with the supercenters—is to try to take the traffic, in this case clicks, that’s generated from their really robust food business and sell general merchandise, in this case to try to help make their digital online business profitable.”
Simon added that Walmart has a “very distinct advantage in online grocery,” given that it has a much larger footprint with its 4,700 U.S. stores compared to Amazon’s Whole Foods. “I think it’s an attempt to leverage their food business.”