October 16, 2015 / 6:09 PM / 2 years ago

Wal-Mart share swoon brings out options bulls

Souvenir t-shirts are seen for sale at the Wal-Mart Neighborhood Market in Bentonville, Arkansas, June 4, 2015. REUTERS/Rick Wilking

NEW YORK (Reuters) - Wal-Mart Stores Inc’s (WMT.N) shares fell hard after the world’s largest retailer cut its profit view for 2017 but some options traders were betting on a quick rebound.

On Wednesday, the company warned that earnings per share will fall as much as 12 percent next fiscal year, sparking the steepest one-day decline in the company’s shares in 25 years.

While the falloff sent some looking for near-term protection, the hottest activity centered around traders betting on the shares climbing north of $65 by mid-January, a gain of more than 10 percent.

On Wednesday, 19,500 of these contracts traded for an average price of 84 cents, according to Thomson Reuters data.

Most of this flow appeared to be from options buyers opening new positions, said Fred Ruffy, strategist at options analytics firm Trade Alert.

With open interest of 21,600 contracts these options represent the fourth-largest block of active options on the company’s shares.

Other heavily traded contracts included options betting on the shares rising above $60.00 and $62.50 by mid-January.

Given that the stock appeared oversold some people may be betting on a bounce to pre-crash readings, said Scott Fullman, chief strategist at Revere Securities Corp.

“I also believe that people are looking for alternatives to their stock positions,” Fullman said.

Some traders appeared to have sold stock and loaded up on call options instead as a way to reduce exposure to the stock’s volatility while still being able to participate in gains if the shares rally hard.

A quick rebound, however, would be uncharacteristic for the shares. The stock, which is down 31 percent in 2015, has in the past been slow to recover when falling sharply from a multi-year high.

Reporting by Saqib Iqbal Ahmed; Editing by Meredith Mazzilli

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