The Perfect Storm for Wal-Mart?

With tax refunds hitting consumer pockets over the next few days and weeks, Wal-Mart (WMT, $57.96, up $0.61) could be the “Retailer of Choice” as people spend their rebates on the 800-pound discount gorilla. The company is offering to cash the checks for free and said no purchase will be necessary.

Wal-Mart offers the best of both worlds. It’s a one-stop hub for all of your household, grocery and even your gas needs. It’s no coincidence the company is cutting prices on key grocery and other items to coincide with the distribution of the rebates. Wal-Mart really wants to grab a bigger piece of the grocery segment although margins aren’t that great. However, Wal-Mart has superior cost-cutting structures in place that they are able to pass on to the customer.

Option traders are placing bets on the May 57.50 calls (WMTEY, $1.43, up $0.30) and the May 60 calls (WMTEL, $0.44, up $0.12) which are up 26% and 37%, respectively, that the stock continues higher.

Wal-Mart usually doesn’t make big, dramatic moves in its stock price but the bulls seem to want to push this one up to the $60 level. If Wal-Mart can get to $61 by May 16th then the May 57.50 and 60 calls would double from current levels with the 57.50’s returning slightly more. Either way, this is a very aggressive play on a stock that Wall Street has fallen back in love with.

Rick Rouse
Rick@OptionsMentoring.com

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