Market Insights

Walmart has been stuck in a tight range, and some events this week could trigger a move.

The retail giant broke out to new record highs on February 20 before settling into a range between about $58.50 and $61. Prices have recently moved above the convergence of the 9-, 18- and 50-day moving averages. That may suggest prices are trying to continue higher.

Two trends seem to be impacting the stock.

Earnings and Advertising

First, store traffic and shopping trends have been strong. Same-store sales beat estimates by almost a full percentage point last quarter. That caused profit to surpass estimates by 9 percent, even with revenue beating by less than 2 percent.

In addition, the U.S. retail sales rose more than twice the forecast amount in March. Given WMT’s prominence as the country’s biggest retailer, could it benefit from those national-level numbers?

Evercore ISI also added the stock to its Outperform Tactical Trading list yesterday, citing the potential for comparable sales to beat again this week.

Second, WMT is trying to convert its 145 million shoppers into an advertising and media asset. Adweek reported on May 8 that the company is collaborating with Walt Disney (DIS) to let advertisers on Disney+ and Hulu link their spending to consumer behavior at the retail giant. WMT already has similar agreements with NBCUniversal, Roku and TikTok.

“When you grow your digital reach, and you’ve got and e-commerce business that’s scaling like ours…you get an opportunity to sell advertisements and we can connect the dots for advertisers,” CEO Doug McMillon told CNBC after the last earnings report. He added that marketers will be able to clearly see whether consumers bought products after viewing commercials.

Walmart Options

Two events could potentially move the stock this week:

• The April retail sales report and consumer price index (CPI) tomorrow morning
• Quarterly results on Thursday morning
• Both are due before the opening bells.

WMT fell 0.12 percent to $60.42 yesterday. Investors looking for rallies could own shares, but that risks potentially big losses if bad news drives the stock lower.

Options traders might consider bullish vertical spreads, which can leverage sharp moves at a relatively low cost. It includes buying one call and selling another to offset the cost. If the stock rallies above the higher level, investors keep the difference between the two strike prices.

This is an example of the kind of strategy they might construct. It uses short-term contracts expiring this week.

• The 17-May 61 calls could be purchased for $1.07.
• The 17-May 64 calls could be sold for $0.23.
• That translates into a cost of about $0.84, excluding commissions.
• The position could expand to $3 if WMT closes at $64 or higher this Friday.
• That’s a potential profit of 257 percent from the stock rising 6 percent.
• It expires worthless if WMT stays under $61. Breakeven would be at $61.84.

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