WMT Bullish Call Spread is Underpriced at $3.15; Theoretical Value $3.50

27 March 2023, 11:23 AM

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By Dmitry Pargamanik

How this WMT Bull Call Spread Works

The bottom of the WMT trade card shows us that we would buy one call and sell another with the same 21-Apr-23 expiration (this is a bull call spread as indicated on the top of the card).

Buy: 21-Apr-23 138 CALL

Sell: 21-Apr-23 142 CALL

Reasons to Like This Trade

  • You can buy this spread for $3.15 when theoretically it’s worth $3.50. Simply put, the market is implying a theoretical edge of 11.0%.
  • Your maximum gain is $0.85, which means you can make an astounding 27.0% return on your investment in 19 trading days! (That's if the stock closes at 142 or above. $0.85 / $3.15 = 27.0%) At the time of this alert, the stock was trading at 143.98.
  • The stock only needs to close at, or above, 142.00 after 19 trading days for you to realize this maximum return. Since the stock is already above your ideal price of 142.00, you have a cushion in the strategy. The stock can decline by -2.0% and you'll still break even. If the stock stays here or goes higher you will make your max gain.
  • 5 out of 7 indicators are pointing to a bullish sentiment in the stock, which is enough to believe there is a decent chance the stock price could hit its mark of 142.00. Look, nobody knows for sure if the stock is going to go up or down, but, if you had to handicap the stock price, these metrics are indicating that WMT is really riding the momentum of bullish signals.
    Metric Signal Bull or Bear
    Relative Performance 1-yr Outperform Bullish WMT Bullish Relative Performance 1 year
    Relative Performance 3-Mon Underperform Bearish
    Relative Performance 2-Wk Outperform Bullish WMT Bullish Relative Performance 2 Week
    Seasonality Strong Bullish WMT Bullish Seasonality
    Technical Bearish
    Historical Price Action 58% Uptrend Bullish WMT Bullish Historical Price Action
    Option Order Flow Sentiment Positive Net Option Delta Bullish WMT Bullish Option Order Flow Sentiment

Conclusion

This trade in WMT looks like a good opportunity because:

  1. 5 out of 7 bullish indicators support positive momentum
  2. 27.0% potential return on your investment
  3. Theoretical edge of 11.0%
  4. The stock price is already at the price point for you to make your max gain and can even go down by -2.0% and you'll still break even!

Don't Let an Opportunity Pass You By!


How to Find More WMT Bull Call Spread Strategies

How you can find bull call spread trade ideas for other stocks


And if you want to find more bull call spreads for other stocks, go to the bull call spread screener


Relative Performance

WMT has outperformed the market in the last year with a price return of +2.4% while the SPY ETF lost -10.6%. However, in the short term, WMT had mixed performance relative to the market. It has underperformed in the last 3 months, returning +0.6% vs +3.8% return in SPY. But in the last 2 weeks, WMT shares have fared better than the market returning +5.6% compared to SPY +3.0%.

Learn about a stocks relative strength


Seasonality: Strong

The strategy involves holding the position from Mar 27 to Apr 21 expiration. Historically, this has been a strong seasonal period. In the past 12 years, WMT shares have increased 92% of the time between Mar 27 to Apr 21, while averaging a return of +4.7%. Learn how to look up stock seasonality.

Technical:

None

Historical Price Action: 58% Uptrend

In the last 4 years, there were 19 historical samples of WMT stock price movements over the same time period as this option spread. The stock moved up 58% of the time for an average return of +4.3%.

How to generate statistics on a stocks historical price return distribution

Option Order Flow Sentiment: Positive Net Option Delta

At the time of this WMT trade idea, bullish option order flow exceeded bearish option order flow. The net option delta volume was 104 K.

Learn more about option delta volume.

Find out the latest sentiment from the options market for WMT

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NOTE: Stock and option trading involves risk that may not be suitable for all investors. Examples contained within this report are simulated and may have limitations. Average returns and occurrences are calculated from snapshots of market mid-point prices and were not actually executed, so they do not reflect actual trades, fees, or execution costs. This report is for informational purposes only, and is not intended to be a recommendation to buy or sell any security. Neither Market Chameleon nor any other party makes warranties regarding results from its usage. Past performance does not guarantee future results. Please consult a financial advisor before executing any trades. You can read more about option risks and characteristics at theocc.com.


The information is provided for informational purposes only and should not be construed as investment advice. All stock price information is provided and transmitted as received from independent third-party data sources. The Information should only be used as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments and trading strategies. The Company does not guarantee the accuracy, completeness or timeliness of the Information.