It’s not very often that Walmart (WMT) options have the highest Vol/OI ratios, but that happened in Wednesday trading, with the June 20/2025 $73.33 and June 20/2025 $76.67 puts leading the way.
Yesterday, Walmart's two puts came out on top out of 1,124 options expiring in seven days or more with Vol/OI ratios of 1.24 or higher. Short straddle and protective put strategies are in play here.
In its long and illustrious history, Walmart is up nearly 80% in 2024, likely one of, if not the best, annual performance by WMT stock. Since bottoming in May 2022 at $39.09, the discount store’s shares have appreciated by 143%. While those aren’t Nvidia (NVDA) numbers, they’re good for a business that wins through volume.
I am on a Walmart fixation right now.
Last week, I included the June 20/2025 $115 call in three high-potential unusually active options expiring mid-2025. The ask price is up about 13 cents (8%) in the four trading days since. I like its chances.
When I first looked at the two puts pictured above, I immediately thought about protective puts. Since the stock had come so far, big hitters were ordering up some downside protection on their long positions.
However, the short straddle could be the play they’re really after. Here’s why.
The Protective Put Is a No Brainer
If you’ve owned 100 Walmart shares since the May 2022 bottom, which is realistically unlikely for most investors, you’re sitting on an unrealized profit of $5,587 ($94.96 - $39.09 * 100).
The protective put is when you buy a put option at a strike price below where it’s currently trading to “protect” your unrealized gains. On the other hand, the long put buyer is betting that the share price will be below the strike price at or before expiration.
In the case of the two above, that’s a 23% or more decline for the $73.33 strike over the next six months and 19% or more for the $76.67 strike.
Assuming the share price falls to $70 by June 2025, the profit on selling 100 shares at $73.33 would be $2.66 per share [$73.33 less $70 less the $0.67 ask price]. Of course, your original 100 shares would be down from $94.96 but still up from $39.09.
However, an even more appealing bet if you’re bullish on Walmart might be to sell the $73.33 strike, generate $0.65 in premium income and buy another 100 shares should the share price fall below the strike price by June 2025. This would raise your average cost from $39.09 to $56.21 [$39.09 + $73.33 / 2], but you’d still be well ahead and holding twice the share amount.
The Short Straddle Is the Play for Traders
A short straddle is used when you feel a stock will likely be range-bound for a certain period. As Fidelity’s website states, “‘Selling a straddle’ is intuitively appealing to some traders, because ‘you collect two option premiums, and the stock has to move significantly before you lose money.’”
Walmart has moved a ton in 2024. It’s unlikely to deliver a repeat performance in 2025. At the same time, its business is operating so efficiently that it’s unlikely to fall much in the year ahead. Why not collect two premiums for your trouble?
The $76.67 strike would generate a $21.51 premium from selling a call and put for the same strike price. That’s a 22.65% return based on the current share price of $94.96. On an annualized basis, that’s a 43.3% return. That’s an excellent payday.
The loss probability is 42.6%, so the odds are in your favor that the price doesn’t fall below $55.16 or trade above $98.18 at expiration. I’d be far more concerned about the upside than the downside.
The big trade on the $76.67 put yesterday was a 182,000 block changing hands at $0.97 at 3:42, less than an hour before close. The big trade for the $73.33 strike was for the same amount (182,000) and at the same time of day. It traded at $0.65, 42 cents lower.
Looking at the short straddles for June 20/2025, the lowest loss probability is 40.0% for the $83.33 strike price. If the share price stays between $66.34 and $100.32, you’ll make $16.99, or a 32.5% annualized return.
I’d be more inclined to go with a slightly higher strike price. The $90 strike has a 40.5% loss probability, only five basis points higher than the $83.33, but its breakeven on the high side is $104.10, giving you a little more breathing room. It also has a $14.10 potential profit and an annualized return of 26.9%. That’s still good.
The Bottom Line
When you’re bullish about a stock, the difficulty with covered calls is that you may have to sell your long position if the stock moves higher than anticipated.
So, while you got income for your trouble, you also generated capital gains that will be taxed, either at the long-term rate—0% to 20% depending on your taxable income and filing status—or the short-term rate if held for less than a year, at your ordinary income tax bracket, which varies from 10% up to 37%.
I’m more comfortable selling puts for income when I’m bullish about a stock because, in the worst-case scenario, I'll end up buying more shares at a lower price.
A protective put on Walmart stock makes sense, but a strike price closer to the current share price, while more expensive, provides more immediate protection.
For example, the $95 strike was slightly in-the-money at yesterday’s close with a $5.95 ask. Buy one of these, and you’d be protected from $89.05 down to $70, the price discussed earlier in my examples for the protective put strategy. That would reduce your loss from $24.96 [$94.96 - $70] to $5.91. The $1,905 saved by employing the protective put could be used to buy 27 shares of WMT at $70.
As I said, it’s a no-brainer.
On the other hand, the short straddle requires a bit more finesse because your shares on the short call can be called away should the price rise significantly, triggering a capital gain. Unless you’re confident the share price will remain range-bound or you’re okay taking profits, it's not a strategy you want to implement.
Walmart is a must-own stock. Surprisingly, its 30-day average options volume is only 228,659, about one-tenth of Tesla’s (TSLA).
