Activist rumor spurs bullish Wal-Mart activity

It's the rumor that's moving the world's largest retailer.

Shares of Wal-Mart had been strong on Friday and Monday, buoyed by a rumor that activist investor Bill Ackman will take a stake in the mega-cap stock. There is no confirmation behind the trader talk, but it certainly seems to be a driver behind both the stock and Wal-Mart options.

Bill Ackman's firm, Pershing Square Capital, did not respond to a request for comment.

On Monday, as Wal-Mart shares rose to the highest level of 2014, Wal-Mart options were hopping, with four times the stock's average daily volume trading. Eighty-five percent of that volume was in the calls, rather than the puts, and in one of the biggest trades, a trader bought 29,000 January 82.50-strike calls for 64 cents per share.

This trade, which cost nearly $1.9 million in options premium, only pays off if Wal-Mart shares rise to a fresh all-time high within months.

Notably, the bullish bet also comes ahead of earnings, but expectations are low for Thursday's results given that Wal-Mart already reduced its sales growth forecast in October.

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Because of the company's warning, "I do not think this is about earnings," Dan Nathan of RiskReversal.com said Monday on CNBC's "Fast Money." "This is rumors. This is about a large activist taking a stake: Bill Ackman."

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There has certainly been a trend of big investors making a play for larger and larger and larger companies, but Wal-Mart may be an especially tough nut for an activist investor to crack. The Walton family owns more than 50 percent of Wal-Mart shares, making serious shareholder dissent a virtual impossibility.

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Still, Ackman has gone after big targets in the past. Nathan points out that Ackman recently sought to exact change in consumer products giant Procter & Gamble.

When it comes to Wal-Mart, rumors of an activist getting involved "absolutely contributed to the increased call activity," agreed David Seaburg, head of equity sales trading at Cowen & Co.

Of course, that doesn't mean that the call buyers will be rewarded. But given the low price of options, it might be worth taking a flyer.

"Although most of these speculative situations prove to be false, traders are willing to make a bet particularly in names where volatility is so cheap," Seaburg added.

Follow the show on Twitter: @CNBCOptions.

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    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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