Walmart stock is showing improving relative strength in the last month and is above the 21-, 50- and 200-day moving averages.
Walmart, one of the world's largest retailers, operates thousands of stores globally, offering a wide range of products, from groceries to electronics. Known for its low prices and expansive reach, Walmart has significantly shaped retail landscapes worldwide.
One way to take ownership of a stock for less than the current price is via a cash secured put option trade. Let's take a look at how this might look on Walmart stock.
As a reminder, A cash-secured put involves writing an at-the-money or out-of-the-money put option and simultaneously setting aside enough cash to buy the stock.
Keep Premium Or Buy Walmart Stock At Discount
The goal is to either have the put expire worthless and keep the premium, or to be assigned and acquire the stock below the current price.
It's important that anyone selling puts understands that they may be assigned 100 shares at the strike price.
Let's assume we're happy to buy 100 shares of Walmart at a price of 65 any time between now and Aug. 16.
Selling an Aug. 16, 65-strike put would generate around $140 in premium. The put seller would have the obligation to purchase 100 shares of Walmart at 65 if called upon to do so by the put buyer.
The break-even price for the trade can be calculated by taking the strike price less the premium received. In this case, it's a break-even price of 63.60.
That's 3.46% below Friday's closing price.
Walmart Stock Gets Assigned At Strike Price
If the stock stays above 65 at expiry, the put expires worthless, leaving the trader with a healthy 2.2% return on capital at risk. That works out to around 11.64% on an annualized basis.
The main risk with the trade is similar to outright stock ownership. If the stock falls sharply, the trade will suffer a loss. However, the premium received for selling the put will partially offset the loss.
The maximum loss on the trade would occur if Walmart stock fell to $0, which would see the trade lose $6,340. But most traders would cut their losses long before then.
A stop loss could be set if Walmart drops below 61.
A Good Way To Get Extra On Stocks
Cash secured puts are a fantastic way to generate a nice return on stocks the trader is happy to own.
If the put does get assigned, the investor takes ownership with a reduced cost. Investors can potentially begin selling covered calls to generate additional income from the position.
According to the IBD Stock Checkup, Walmart stock is ranked No. 1 in its industry group. It has a Composite Rating of 97, an EPS Rating of 87 and a Relative Strength Rating of 87.
Walmart is due to report earnings in mid-August, so this trade would have earnings risk if held to expiration.
It's important to 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.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ
