Getting Bearish: Why Wal-Mart and GE Are Both Expensive
Why did we see a clip of two bears fighting on last Friday’s "Options Action?"
Well, because that video basically summed up the whole show— Friday’s episode was one for the bears. And viewers must have felt bearish, too, because as of noon today, the August 65-strike Wal-Mart put that CRT Capital Mike Khouw suggested buying has traded over 3,000 contracts. That’s one-and-a-half times the morning’s total volume for all Wal-Mart puts combined in the August expiry.
The idea to get short Walmart came courtesy of Oppenheimer’s Carter Worth, who pointed out that in the previous fifteen times Walmart has exceeded its 150-moving average by more than 10%, it has declined in the subsequent three months. The stock has been on a tear thanks to low oil prices and its status as a perennial safety play. But that run could be getting a little stretched. As Khouw pointed out, the world’s biggest retailer gets much of its growth from abroad, not exactly a bastion of stability these days. Throw in the fact that Walmart is trading at a premium to the S&P, and you could be looking at stock that has come too far, too fast. Trade and breakdown are below.
MIKE’S WAL-MART TRADE
- BUY THE AUGUST 65-STRIKE PUT FOR $0.90
HOW MIKE’S WAL-MART TRADE MAKES MONEY
- LOSSES ABOVE $64.10
- PROFITS BELOW $64.10
On to the other bearish trade. Riskreversal.com’s Enis Taner set his sights on industrial giant, General Electric (which is also 49% owner of NBCUniversal and CNBC). Enis noted that with 50% of GE’s revenue coming from outside the U.S., and global markets looking increasingly risky, GE could be cruising for a bruising. Despite these concerns, the stock has been trading around one-year highs, while other companies with similar international exposure has seen their stocks get punished— Caterpillar would be one example. Enis thought GE would follow CAT down.
To make a bearish trade, he suggested buying the August 19/17 put spread for $0.30. His trade and payout are below.
ENIS’S GE TRADE
- BUY THE AUGUST 19-STRIKE PUT FOR $0.45
- SELL THE AUGUST 17-STRIKE PUT FOR $0.15
HOW ENIS'S GE TRADE MAKES MONEY
- LOSSES ABOVE $18.70
- PROFITS $18.70 - $17.00
- PROFITS CAPPED AT $17.00
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