Wal-Mart Ready to Rumble With Amazon -- Barrons.com
DOW JONES & COMPANY, INC. 10:52 AM ET 11/16/2017
Symbol Last Price Change
WMT 97.33up +7.5 (+8.35%)
AMZN 1135.75down +9.06 (+0.8%)
QUOTES AS OF 11:13:49 AM ET 11/16/2017
Oh, ye of little Wal-Mart Stores(WMT) faith, who fear Amazon.com's(AMZN) fire and brimstone.
On Thursday morning, Wal-Mart Stores(WMT) reported extraordinary fiscal third-quarter earnings, and raised financial guidance.
These results should be viewed as a resounding confirmation that the king of traditional retail has what it takes to fiercely compete with the king of online retail (AMZN).
Wal-Mart's (WMT) stock is up 8.4% in midday trading Thursday, creating conditions that require taking profits on our earnings trade, and repositioning for the stock to trade even higher.
With shares around $95, investors can sell Wal-Mart's(WMT) March $92.50 put and buy the March $95 call for a net cost of $1.05. The risk reversal -- that is selling a put and buying a call with a higher strike price but similar expiration -- obligates investors to buy the stock if it declines below the $92.50 strike, while enabling them to participate in any rallies above $95.
The March expiration was chosen to cover the Feb. 20 release of fourth-quarter earnings. The trade also benefits if holiday sales are good, which should enable the stock to consolidate its recent gains. So far this year, Wal-Mart(WMT) is up 39%. Over the past 52-weeks, the stock has traded from $65.28 to $96.02.
The position is suitable for investors who are now looking for a cost-effective way to trade Wal-Mart(WMT) trade, or as a replacement for those investors who took our advice in early September to bullishly position into earnings.
When the stock was at $78, we recommended investors sell the November $77.50 for $2.03, and buy the November $80 call for $1.81. The puts are now worthless, and the call is trading around $15.75.
STEVEN SEARS is the author of The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails.
Comments: steve.sears@barrons.com
Follow: @sm_sears
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11-16-171052ET
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