EOT Trade Alert – April 30, 2012

| April 30, 2012

April 30, 2012

Trade Alert:

   Buy WMT September 2012 $57.50 Calls at $3.20 or better

Company Background:

Wal-Mart (WMT) is the largest retailer in the world.  The company has more than $400 billion in annual revenue and is fast approaching 10,000 stores across the globe. The company mainly operates supercenters.  Groceries account for roughly half of total sales with the other half in general merchandise, including items in automotive, apparel, health and wellness, entertainment, and home goods.

Short-Term Catalyst:

Shares of Wal-Mart have recently fallen over 7% on the heels of allegations of corruption in the company’s Mexican division.

Wal-Mart de Mexico (WMMVY) engaged in years of widespread bribery to quickly obtain building permits to reach store dominance in Mexico.

Of course, here at home we can expect a long ongoing investigation by the SEC and the Department of Justice.

However… this really isn’t cause for long term investing concern.

So, the question is, is there a point in this pullback that there could be a tradable bounce in the stock?

The answer… yes, through the options market.

Wal-Mart just has too many positives going for it to be overshadowed by a few stores in a foreign country.

For one, the company remains the world’s retail price leader in food and general merchandise.  And if it needed to, WMT can easily reign back its market share at any time through small price increases.

In addition, WMT is positioning itself to strengthen its new venture with the mighty Amazon (AMZN).  They’re in the midst of a major realignment at its Internet division.

Simply put… Wal-Mart’s pricing, coupled with Amazon’s distribution channel, has the potential to produce gigantic returns in the years to come.

Bottom line…

I think the expansion of domestic market share will be the main source of gains for the stock’s future performance.  When the company begins to report US comparable-store sales ahead of consensus forecast, the stock will easily regain its lost ground.

So, let’s pick up some call options now to take advantage of this news driven pullback.

We may not get an opportunity like this again!

Trade Details:

Underlying Stock Symbol: WMT
Current Bid-Ask Price: $2.85 – $2.95
Option “Buy Up To” Price: $3.10
Break-Even On Stock At Expiration: $60.60
Maximum Risk Per Contract: $310

Exit Strategy:

WMT is trading at $58.80 per share.  That’s right, this option is in the money already. The reason for using this strike is due to the low and steady upward movement WMT has had over the years.  The way this option will move will be closely correlated with the stock in a positive fashion.

Resistance will be at $62.50 and again at $65.00.  Don’t forget, we want this stock to move higher.  Support levels will be at $55.00 and $52.50.  Conservative investors should look to exit at the first support or resistance level.  Aggressive investors may want to hold for a bigger move.




Category: EOT Trade Alert

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