Can This Winning Streak Continue?

During the last 5 months it has been possible to sell put options on Walmart (WMT) and walk away keeping 100% of the put option premium free and clear. In previous posts you will find examples for 3 put option sales.

The strategy of selling near the money put options on this strong retailer has been working. It is best to stick with success and try again.

Walmart is such a great business that it is rare for sales to decline year over year, with only one year of a 0.7% decline since 1980. It does $542 billion in sales per year (68% more than Amazon) and online sales grew 97% over the last 12 months.

The company is gushing free cash flow of $23 billion and growing which allows them to invest more in the business and pay a rising dividend as part of the Dividend Aristocrat club.

Walmart is not letting Amazon competition go without challenge... they recently launched Walmart+ to give customers free delivery on groceries and other items, discounts on gasoline and mobile scan and go purchasing at any of its stores.

Even with this impressive results and potential future Walmart still trades at a discount to the overall market at 13.8 times EV/EBITDA.

The share price has been in a strong uptrend over the last 2 years mostly tracking the 50 day moving average higher with strong support on the 200 day moving average.

It is time to once again take advantage of Walmart's strengths by selling a put option. The best case scenario is shares trade higher than your strike price and the option expires worthless. (in this case you keep 100% of the premium received and free up capital for your next trade.) Even if you are put shares of stock (i.e. shares trade below your strike price on expiration day and you are assigned 100 shares for every put sold) you will own a great company at a great price and paid upfront for the privilege.

Sell to open the November 20 $140 put on Walmart for $2.90 or better using limit orders. You will receive a 2.1% payment upfront for agreeing to buy shares at around 3% discount to recent prices.

At expiration if shares are above $140: put sellers keep the premium free and clear for a 26% annualized return.

At expiration if shares are below $140: put sellers buy shares at about 5% discount to recent prices including the premium payment. You will now own 100 of stock for every put sold. Earn more income by selling covered calls and potentially receive future dividend payments.

Use a stop loss below the 200 DMA at $119 this will be 13% below your adjusted cost basis (140 - 2.90), below the 200 DMA and below strong resistance that turned into support at $120.

Are you earning enough income on your stock investments? If not you should try put selling and covered call writing today.

Divider provided by barge

Disclosure: I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. The information provided should NOT be considered advice. The topics discussed are risky and have the potential to lose a substantial amount. I am not an investment professional and therefore do not offer individual financial advice. Please do your own research before investing.

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