U.S. Markets closed

Option Trader Makes Massive $1.4M Bet On Walmart

Wayne Duggan

Shares of Walmart Inc (NYSE: WMT) traded higher by 1% on Wednesday after the yield curve between 2-year and 10-year U.S. Treasury notes uninverted, easing concerns about a U.S. recession.

Despite concerns over the impact of new tariffs on Chinese goods, Walmart shares are trading at new all-time highs, and at least one large options trader made a massive bet on Wednesday that the best is yet to come for Walmart.

The Trade

On Wednesday, Benzinga Pro subscribers received an option alerts related to an unusually large Walmart option trade.

At 9:50 a.m. ET, a trader bought 7,631 Walmart call options with a $115 strike price expiring on Sept. 20. The contracts were purchased at the ask price of $1.96 and represented a $1.49 million bet that Walmart shares have at least another 1% upside over the next two to three weeks.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader. Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large size of the Walmart option trade, there’s certainly a possibility it could be a hedge on a large short position in Walmart stock.

More All-Time Highs Ahead?

Walmart gained more than 6% on the day following its impressive second-quarter earnings report on Aug. 15, its biggest single-day jump in nearly two years. Walmart shares have made new all-time highs in 2019 after fears that the U.S. retail giant could be usurped by Amazon.com, Inc. (NASDAQ: AMZN) have shifted to optimism Walmart can join Amazon in gaining share from other brick-and-mortar retailers.

In the second quarter, Walmart reported 2.8% U.S. same-store sales growth, but online sales were up an impressive 38%. Heavy investments in omnichannel services such as pick-up, grocery delivery and NextDay delivery seem to be paying off in a big way for investors.

Benzinga’s Take

Given Walmart doesn’t have any clear near-term catalyst ahead in the next couple of weeks, Wednesday’s call buyer may simply expect the stock’s bullish trading momentum to carry it higher in the coming weeks. Assuming the position was not a hedge, the trader also appears to be betting that there will be no major negative trade war developments or disappointing economic numbers in the near-term.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Related Links:

Large Option Trader Makes Bearish Long-Term Bets Against PG&E

How To Read And Trade An Options Alert

Photo credit: MikeMozartJeepersMedia, via Wikimedia Commons

See more from Benzinga

© 2019 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.