Walmart's Earnings Surprise Just Created This Great Trade Opportunity

Walmart (WMT) posted earnings last Thursday, beating expectations on Earnings per Share ($.67 vs $.64 expected) and sales ($169.33B vs $168.56B) which lifted the stock about +8%. Since then, its consolidated between the $72.50 and $74 levels.

While I think there might be a mild pullback in WMT, my PFP system (Positioning, Flows, and Price Action) is telling me the line of least resistance is to the upside.

That's created a great opportunity for an options trade.

Let me show you how I'd trade it.

Currently, I'm seeing flows positioned for a move to at least $80 in the coming months, and when you look at the analysts updated price targets post earnings release, I'm seeing 75%+ of them choosing price targets above $80 with some as high as $85.

Granted, these are end of year targets, and some of them pushed out to 12 months, but I think WMT is going to make a run at $80 before that. The only economic events which could dent this upside enthusiasm would be a) a bearish result out of the Jackson Hole symposium (Aug 22-24), b) an escalation in the Israel/Iran conflict, or c) the FOMC in September on the18th. If those come out bullish, I'm expecting WMT to be printing at $80, perhaps even higher.



But now the question becomes, how would I trade it and when would I be expecting such a move? The challenge with the current price ($73.81 as of this writing) is we're ‘in-between' two key positional levels (70 and 75) which you can see in the chart above. $75 is the TCS (top call strike) and $70 is the TGS (top gamma strike). Between these two positioning isn't quite as fortified, so its not a stable place to be parked. The good thing is price action has been consolidating between $72.50 and $74 since the earnings release for 3 sessions now. The longer it holds at these levels, the more likely OTM strikes will come in, thus consolidating around the current tight range and thus fortifying the current prices.

I'd prefer if WMT went down to $70, which would give me a great upside risk/reward play targeting $75 short term and then $80 medium term. But what happens if it goes to $75 first and never makes it back to $70? At that point I'd look to get long targeting $80 but would push the expiry out to Oct or maybe Nov.

In terms of how I'd like to trade this, I'm considering a bull call spread, or looking at longer term calls further out in time and perhaps pushing them a bit further OTM (out of the money) to reduce costs and theta decay. As long as WMT doesn't lose $70, I'm going to retain a bullish bias and expect more upside post earnings.

If you'd like to learn more about how I'm trading this live, you can check out the Benzinga Option School or Trading Waves where I am live 5 days a week in the chat sharing trade ideas, option flows and key positional levels.

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