Here's How Large Option Traders Are Playing Walmart As Economic Fears Grow

Walmart Inc WMT has held up relatively well amid the coronavirus fears, dropping just 3.3% year-to-date so far in 2020.

On Tuesday, a flurry of large Walmart option trades were extremely mixed, suggesting Walmart traders don’t quite know what to expect in the coming months.

The Trades

On Tuesday, Benzinga Pro subscribers received 11 option alerts related to unusually large trades of Walmart options. Here are three of the biggest:

• At 10:22 a.m., a trader bought 1,000 Walmart call options with a $125 strike price expiring on April 17 at the ask price of 75 cents. The trade represented a more than $75,000 bullish bet.
• At 10:37 a.m., a trader bought 2,558 Walmart call options with a $125 strike price expiring on April 17 near the ask price at 75 cents. The trade represented a more than $191,850 bullish bet.
• At 12:01 p.m., a trader sold 654 Walmart call options with a $120 strike price expiring on June 19 near the bid price at $3.351. The trade represented a $219,155 bearish bet.

Of the 11 total large Walmart option trades on Tuesday morning, five were calls purchased at or near the ask, trades typically seen as bullish. Five trades were calls sold at the near the bid, trades typically seen as bearish. One trade took place near the spread midpoint, a price typically considered neutral.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively small sizes of the largest Walmart trades by institutional standards, it’s unlikely they represent institutional hedges.

Smart Money Divided

Deep-pocketed option traders seem extremely divided on what to expect from Walmart after the company’s disappointing fourth-quarter earnings report. Walmart did not include coronavirus headwinds in its updated 2020 outlook, so it may be unlikely the company hits its full-year operating income and revenue growth targets of 3%.

Following the earnings report, Deutsche Bank reiterated a Buy rating and cut its price target for $129. Stifel Nicholaus reiterated a Hold rating and raised its target to $117. Among the 32 analysts covering the stock, 20 have Buy or Outperform ratings and none have Sell or Underperform ratings. The average price target among those analysts is $130, suggesting about 13.4% upside.

Bullish sentiment among StockTwits messages mentioning Walmart has rebounded from a five-month low of from 43.1% on Feb. 25 to just 64.9% on Tuesday.

Benzinga’s Take

Walmart is one of the blue chip stocks of the U.S. market, and typically hold up relatively well during economic downturns. From Jan. 1, 2008 to Jan. 1, 2009 when the S&P 500 dropped 38.4% during the financial crisis, Walmart shares were up 17.9%.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Related Links:

Here's How Large Option Traders Are Playing Apple Following Coronavirus Sell-Off

How To Read And Trade An Options Alert

Photo credit: Walmart Corporate from Bentonville, via Wikimedia Commons