Options Gamers See Wal-Mart at $56.50 in June and $55.50 in September (WMT)

Wal-Mart Stores, Inc. (NYSE: WMT) may have caused some irreparable damage to its investors.  This bribery scandal in Mexico looks very small if you just look at the raw dollars for a company which generates well over $400 billion in global sales each year.  There are a couple of things to consider, the first of which is the chart. The second consideration is that options traders sure appear to be betting on more downside out to June and even more downside out to September.

A review of the stockcharts.com chart at the end of this article shows that Wal-Mart again has sharply violated its 50-day moving average after a recovery to new recent highs.  This is the second such violation in well under ninety days.  The stock continues to act as a trap.

Now take a look at the options trading.  Of course there are many call option buyers and sellers hoping that today’s news is just an over-reaction since the stock is down by 4.7% to $59.50 on three-times normal trading volume with more than two hours until the market closes.

Go out to the JUNE $57.50 PUTS with some 4,514 contracts traded against an open interest of 14,187 contracts.  The last trade was at $0.97 per contract, indicating that investors are effectively betting that the stock may go to around $56.50 or so.

Now go out to the SEPTEMBER $57.50 PUTS trading 2,259 contracts against a prior open interest of 5,187 contracts.  With a last trade of $2.07, that is a gamble that Wal-Mart will effectively fall to $55.50 or so by the time September 21, 2012 rolls around.

Of course this is using simple intrinsic value.  It is very possible that some investors are selling those puts for a theoretical long trade and some investors may just be hedging shares.  Still, some are making the bet that more downside is on the way.

It is hard to imagine that a few million dollars worth of a scandal can eat up more than $9 billion in market capitalization, but investors shoot first and will ask questions later.  If you find one roach somewhere in your house, common sense would dictate that there are other roaches elsewhere.

JON C. OGG

You can click on the chart twice to enlarge it.