WMT has always been a favorite stock of mine. I've never learned how to make money in such an ugly chart until now.
I recently learned about Calendars. In short, a calendar is a diagonal trade with the same strike on both ends. (Ex: Feb 47.50/June 47.50) This type of option is great for channeling stocks that just bounce up and down between two numbers. The more the stock touches the strike price the better opportunity to make money either thru a roll or early exit.
Now let's talk about this trade. Walmart has been channeling between 44.50 and 49.50 for the last 2 years. It has a high of around 56.65 on 03/01/2002 and a low of 41.25 hit on 10/02/2000. This definately classifies as a channel!
The options on WMT are great right around the median of 47.00. I placed a Call Calendar at the median Feb/June 47.50 for a debit of $1.95. Roll out will be either the week of expiration in Feb or within 10 day of exipry if the stock price crosses the median line again.
Feb 47.50 price 1.30
June 47.50 price 3.40
ROI = 1.30/3.40 38% in 5 weeks!
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