Walmart Earnings: Bull Put Spread Trade

Walmart (WMT) is an American multinational retail corporation headquartered in Bentonville, Arkansas, operating a vast network of hypermarkets, discount stores, and grocery outlets, and it ranks as the world's largest company by revenue.

Founded by Sam Walton in 1962, it serves millions of customers weekly across thousands of stores worldwide and its e-commerce operations, and is known for its everyday-low-price strategy and expanding presence in online retail, advertising, and membership services through Sam's Club.

Walmart has stayed above the expected range following five of their seven most recent earnings announcements.

WMT Earnings Bull Put Spread

With earnings set for August 20th before the market open, implied volatility on WMT stock is through the roof.

Implied volatility is sitting at 32% compared to a twelve-month low of 18%.

That means, it’s a great time to be an option seller.

If you have a bullish outlook for Walmart for their earnings announcement, then a bull put spread is a great strategy to employ.

To execute a bull put spread, an investor would sell a naked put and then buy a further out-of-the-money put to create a spread.

A bull put spread is considered less risky than a naked put, because the losses are capped thanks to the bought put.

Potential Benefits

Bull put spreads offer several advantages for options traders seeking to generate income while managing risk. 

They provide a defined-risk strategy, allowing traders to know their maximum potential loss upfront. 

Additionally, bull put spreads benefit from time decay, as they profit from the erosion of extrinsic value over time. 

This time decay accelerates as the expiration date approaches.

Bull put spreads will benefit from the drop in implied volatility that always occurs after an earnings announcement. 

Potential Risks

While bull put spreads offer enticing benefits, they also come with inherent risks. 

One significant risk is the potential for substantial losses if the underlying stock's price declines sharply. 

Traders must also consider the possibility of early assignment, which can occur if the stock price moves below the short put option's strike price before expiration. 

It's essential for traders to thoroughly understand and manage these risks when implementing this options strategy.

Selling an WMT Bull Put Spread

A trader selling the August 21st, $107-strike put and buying the $104-strike put on WMT would receive around $52 into their account, and would have a maximum risk of $248. 

That represents a potential 20.97% return on risk between now and August 21st if WMT stock remains above $107.

If WMT stock closes below $104 on August 21st, the trade loses the full $248.

The breakeven point for the bull put spread is $106.48 which is calculated as $107 less the $0.52 option premium per contract.

Company Details

The Barchart Technical Opinion rating is a 72% Sell with a Weakening short term outlook on maintaining the current direction.

Of the 39 analysts covering WMT, 28 have a Strong Buy rating, 6 have a Moderate Buy rating and 5 have a Hold rating.

Conclusion

Selling a bull put spread on WMT ahead of earnings can offer traders an opportunity to capitalize on anticipated bullish sentiment while managing downside risk. 

By carefully selecting strike prices and expiration dates, traders can position themselves to potentially profit from a favorable earnings outcome while limiting potential losses. 

However, it's crucial for traders to conduct thorough analysis and adhere to risk management principles to navigate the inherent uncertainties associated with earnings events.

Please remember that options are risky, and investors can lose 100% of their investment. 

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.