Weekend Review

Options Action –

The show often starts with a look at the overall markets and the feeling was that the price action in the financials on Friday was initially encouraging, but ended up a bit discouraging as the stocks retreated over the course of the day. Seeing oil declining is also a signal that has the traders a bit concerned. The drop in oil may be a reflection of lower global demand. Lower global demand for oil would be a sign that a global recession may be on the horizon.

The first trade recommendation was on General Electric (GE – 19.81) and follows the bearish outlook for the global economy. The suggestion here is to buy a GE Aug 19 Put at 0.45 and sell a GE 17 Put for 0.15. The net cost here is 0.30 with a potential profit of 1.70 if GE trades down to 17.00 at August expiration. Break even for the trade is 18.70. There was actually a little dissention regarding this trade with one panelist thinking this may be a bit aggressive with a target of 17.00. 

The next trade was on Wal-Mart (WMT – 67.30) that may have some near term issues on the horizon. A very straightforward long put trade buying a WMT Aug 65 Put for 0.90 is recommended. As options are relatively cheap due to low volatility no spread is recommended here. A dip in shares below 64.10 by August expiration results in a profit for this trade.

Barron’s –

In the whole small world of things The Striking Price column focused on Wal-Mart as well. However, the case is bullish for shares as opposed to the Options Action idea. One suggestion is to take a look at WMT Jan 67.50 Calls that closed Friday offered at 5.40 for a long term bullish play on WMT. 

As a final thought, if you want to combine the two WMT suggestions you could always put on a diagonal spread selling a near term call and buying a longer dated call.