Retailer Walmart (WMT) has slid 13% in the past month, as consumer spending has shown signs of slowing and amid fears of rising prices of goods via tariffs. One trader sees further weakness ahead.
That’s based on the May $77.50 puts. With 50 days until expiration, 6,629 contracts traded compared to a prior open interest of 132, for a 50-fold rise in volume on the trade. The buyer of the puts paid $1.02 to make the bullish bet.
Walmart shares recently traded for about $85, so shares would need to fall by $7.50, or 8.8%, for the option to move in-the-money.
The strike price of the option is well above Walmart’s 52-week low of $58.56. Shares are now down 20% from their all-time highs set in February.
Even with concerns over consumer spending, Walmart has increased its revenues by 4% over the past year. Earnings growth has been flat, and profit margins are a narrow 3%. But Walmart also tends to hold up during times of economic uncertainty.
Action to take: With shares down 20% from their highs, investors may want to start buying shares here and adding to that position on any weakness. Walmart currently pays a 1% dividend, and has a history of increasing its payout over time.
For traders, with shares not showing any signs of breaking their downtrend quite yet, the May $77.50 puts are an inexpensive trade that could see mid-double-digit returns or better on any further weakness.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.
