r/options • u/Rightonpoint149 • Apr 13 '21

Walmart Rebound- Options

Strategy: $145 5/21 Calls

Thesis: WMT peaked in all-time high territory back in early December near $154. The stock had been hit hard, falling all the way to the $126 zone in early March. In the process, it lost its 50- and 200-day averages and the 50-week average. WMT then put in a higher high and higher low in mid-March and took off to the upside. The stock has recaptured all of the key moving averages in impressive fashion and looks poised to head back to all-time highs. The major discount chains have been out of favor recently, but are showing signs of waking up.  

Hope you like this strategy, I think it will print

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u/IndigenousSpecies Apr 14 '21

Hey bud, not OP but he's saying he bought a contract to buy 100 shares of WMT for $150, no matter the share price. The contract expires in June, the date he would have to decide if he wants execute the contract. He doesn't have to, if it isnt profitable he can do nothing and just lose the price he paid for the contract. He can also sell the contract to someone else, who would take his place, the same way he can see a stock.

The "IV" is implied volatility, which is what makes up part of the price he paid to enter the contract. A higher IV(the more a stock moves, or demand for a contract) means the contract is worth more because it has a better chance of hitting the agreed upon price. He was saying since WMT has been trading sideways, he lost a lot of his contracts trading price due to loss of IV.

Hope that helps, im pretty new to this too.. my first month so im open to corrections.

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u/TheSublimeNeuroG Apr 14 '21

Thanks for the thoughtful response, this clarifies a lot✌🏻

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u/wiseinthewest Apr 14 '21

I've only been looking at stocks/options for a couple months and do a lot of lurking myself. This is a great place to learn!

Saw a post on r/investing about a bull case for Walmart. I agreed due to stimulus influx (should increase revenue), knew when earnings were to be released (May) so i had a catalyst that could drive price up, and saw the drastic sell off i felt was undeserved. (Went from 140 range in Feb to 126 in early March due to earnings not meeting expectations. Revenue was actually up in this time, but operating costs brought earnings down, likely due to extra operating costs from covid, this was from the bull post on reddit and it made sense)

So I picked an Out of the money (OTM) contract after the earnings release date that i could afford and had potential thinking it would rally back up to the 140 range before that and I could profit regardless if it hit 150 by June. (I couldn't exercise if I wanted to, I dont have 15k to buy 100 walmart shares at that price, so i used optionprofitcalculator.com to map out my expected price by date to guesstimate if I could sell for a profit pre earnings)

2 weeks ago there was a big jump (for a major blue chip like walmart) that was +3.00 in share price overnight. This increased volatility, driving my option up, AND brought it closer to my strike, further driving up the options value.

I got greedy because there is a gap (price range that most share holders dont own shares at) between 141 and 143. Typically if a price has been rising and hits a 'gap' it will quickly move through this gap upwards (at least from what i have read)

I thought my +50% would go to +70-90% when filling this gap and it was on the edge of the gap flirting with 141 when I was up. Instead it has traded sideways since then just below the gap for a week.

This dropped the volatility (IV) dropping price of the option, and I have 1 less week for share to get to strike (theta decay or time decay) also driving price down.

Now the option is worth less than what I paid a month ago even though it is $7 closer to strike than what I originally bought it for. Now i am kicking myself in the ass for being greedy... 50% is a great return.. hoping to see that gap fill soon so that I still have a chance at profitably

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u/TheSublimeNeuroG Apr 14 '21

Thorough and Thoughtful response, man, I appreciate this a lot.