WMT Analysis

Wal-Mart Stores Inc. (WMT)

Update 5/18/2017: WMT gapped to the upside after earnings were published and then retreated a bit. I exited at $1.98, or 16.5% of maximum potential profit, below my 25%  target.

This was very much a gut feel exit, an approach I’m quite comfortable with, given the human brain’s excellent pattern recognition skills. It seemed likely to me, about 10 minutes after the opening bell, that a reversal to the upside, toward less profit, was imminent, although there was no rational basis that I could point to. The next 30 minutes provided my hunch to be correct.

At exit shares had shown a net rise of 1.8% over one day, or a +657% annual rate. The options position produced a +19.7% yield on debit for a +7,189% annual rate.

WMT publishes earnings on Thursday before the opening bell.

I shall use the series of monthly options that trade for the last time nine days hence, on May 26.

Implied volatility stands at 21%, which is 1.5 times the VIX, a measure of the volatility of the S&P 500 index.

WMT’s IV stands in the 53rd percentile of its annual range and the 98th percentile of its most recent broad movement.

The price used for analysis was $75.08.

Premium: $2.37 Expire OTM  
WMT-iron fly Strike Odds Delta
Long 79.00 89,7% 11
Break-even 77.37
Short 75.00 50.9% 51
Short 75.00 49.2% 49
Break-even 72.37
Long 70.00 90.2% 9

The premium is 53% of the width of the position’s wings.

The risk/reward ratio is 1.1:1.

Decision for My Account

I have entered a position on WMT as described above. The stock at the time of entry was priced at $75.05.

By Tim Bovee, Portland, Oregon, May 17, 2017

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