WMT Trade Idea For September
Walmart is currently the most overbought Dow stock with a daily RSI reading of 82.62. It’s hard to argue with that strength, but after a 1-month, unrelenting up move, I think it’s time for a pause via some sideways consolidation.
Late last month I mentioned that “momentum might carry it a bit higher before it starts to stall out”.
So far, we’ve seen the first part of that come true with momentum carrying the stock from $110 to $114.60.
With the stock trading above an RSI reading of 70 for the best part of a month, it’s now time for WMT to consolidate sideways. Yes, there may be some further upside, but I doubt it will get above $120 in the short-term.
On June 28th, I mentioned I would look at selling the August 120-125 call spread if it traded at about $0.55 – $0.60. At the moment, that spread is still only at $0.50.
I ended up going with a Sept 120-125 bear call spread in order to give the trade more time to work out. I’m also expecting a general market correction sometime in mid to late August, so that should coincide nicely with this spread and give me a good opportunity to take profits.
The Sept 120-125 spread is currently trading around $0.85 which represents a 20.50% return on capital.
If the spread blows out to $1.70 I’ll look to either take losses or roll out in time and possibly up in price.
Conservative traders might want to wait until the Sept spread gets out to $1.00 before entering.
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are ...
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