Hi Shoppers,

It is so much better trading together than trading alone.

Yesterday in our Option Shopper Tuesday Shopping Spree, someone asked about buying a strangle in Walmart (Ticker: WMT).

Buying a strangle is buying a call and a put in the same expiration month with different strike prices.

Generally, you are buying the out-of-the-money call and the out-of-the-money put and you are looking for a good move in the stock – up or down.

So when looking at this strategy, the first thing you want to do is check out the implied volatility and where it lines up with the historical volatility.

If the implied volatility is lower than the historical volatility, usually your options are cheap and safe to buy.

Here are the vols in WMT:

Here is a close up:

A 21 IV versus a 30 HV is a pretty good set up to buy premium and go long options.

Here is the WMT stock chart, with recent highs and lows of $142.72 and $125.12 just in August:

WMT closed at $132.48 yesterday. Looking at the options chain, I like buying the Sep16 cycle with 17 days until expiration:

Buying the Sept. 16 136 call and the Sept. 16 129 put paying around $2.30-$2.35 seems reasonable with that stock range.

This is what it looks like:

I am delta neutral, meaning I am not leaning towards the stock going up or down, I just want it to move in one of those directions, a lot.

My theta – the daily cost to hold this position at this time – is $12 per one lot of the strangle (one long call and one long put).

Here is the graph of the position and where is makes and loses money:

If WMT just sits here, the strangle will decay every day, losing money.

Once WMT begins to move, there are several things I can do.

I can trade the spread selling/buying deltas as they change.

Or I can take the whole spread off.

Feel free to comment below or email with any questions.

Let’s move it, WMT!!

Thanks for Reading … See You Next Tuesday.

Licia Leslie