Since the earnings last week, Walmart has erased the losses on the stock incurred in the wake of the Mexican bribery scandal. The stock is now trading over $63/share, is at a new 52-week high and is essentially at levels not seen in over 10 years.
There are a few catalysts here.
First, let’s not overlook the earnings. Walmart delivered a quality quarter and most importantly, they delivered a good same stores sales number for Walmart US. This is the metric most widely looked at.
Second, oil/gasoline prices have been dropping recently. Lower fuel prices benefits Walmart immensely. First, it helps the consumer and moreover, it helps lessen Walmart’s transportation costs. This is BIG.
Lastly, I think traders may be cycling into more defensive names in recent weeks as the market is struggling. Sentiment has changed with the rearing of the ugly debt issue in Europe and it’s becoming more obvious that growth might be slowing here in the US.
I decided to sell a June call with a $65 strike covering 100 of my Walmart shares. This provides me a small increase in income (since I collect the premium by selling the call), and it will only affect me if the WMT shares go above the $65 share price. In that case, I’d be forced to sell at $65. My risk is that WMT is over $65 and I’m forced to sell at just $65 leaving money on the table. It’s a short term move and I think that it’s more likely that WMT stays under $65. If I’m wrong, my position will be decreased in WMT but at a nice gain. If that occurs, I’ll look to buy back in hopefully at lower levels.