I’ve never hidden my love for Walmart (NYSE: WMT). It’s not only a love for its low, low pricing, but also for buying the stock itself.
It’s the largest physical retailer on the planet and is keeping pace with mall-killer, Amazon (Nasdaq: AZMN).
I myself have recently been taking advantage of the grocery store pick-up service, which has been a game changer for me. Instead of fighting the crowds and long check-out lines, I order my items online the night before and pick them up the next day. It saves me valuable personal time which I can devote to other important projects.
You may wonder how this differs from Amazon where you don’t even need to leave your house, and still get next day Prime delivery.
Trust me, I still use Amazon for the bulk of my online shopping. But in this case, I’m specifically talking about grocery items. Things like milk, frozen pizza, cheese — items for which I don’t want shipped that might have been sitting in a truck for hours.
It’s that exact food and grocery service that’s propelling Walmart’s recent growth and profitability.
And just last week, Walmart gave an update on its proposed in-home grocery delivery service in which Walmart employees will physically come into your house and put your groceries away for you into your refrigerator.
Now, I personally might not be ready for a stranger to walk into my house. Though Walmart is betting that the public will come around, especially with the security they plan to engage.
The delivery person will not only be vetted, but the homeowner will also be given a special lock for their front door, and will be able to watch the delivery in real-time via the body camera that the employee will wear. And, if you have any items that need to be returned to Walmart, the delivery person will pick those up and take them back to the store.
Sounds pretty interesting. I believe over time, it might just become the new normal.
This is why I continue to like investing in Walmart stock for the long haul.
Get Your Shares for a Big Walmart Discount
Currently, WMT trades for $108.46 per share. And it’s getting close to breaching its recent all-time high of $110. It’s only a matter of time.
Here’s a current chart.
If you’ve been a long-time reader of The Rich Investor, you know I espouse the use of option contracts instead of buying the stock itself. This is because any stock move can be mimicked, and your cash outlay can be slashed dramatically.
By using my deep-in-the-money (DITM) call option strategy, you can invest in WMT shares for a fat 68% discount.
For instance, buying 100 shares of WMT today would cost $10,846.
Using the option chain above, buying a DITM June 2020, $75 call option would cost $34.25 per contract (splitting the bid/ask price). With the $100 option multiplier, the actual cash outlay for buying that option contract would be $3,425.
Not only is that $7,421 cheaper than buying the stock shares, but it’s also a 68% discount to boot.
And with the 90.29% Delta, the $75 call option will move 90% in lockstep with the stock price.
As a refresher, the Delta is an option term that describes how much an option price will change in relation to a stock price change.
The higher the delta, the larger the correlation.
With my DITM strategy, we aim for at least a 90% Delta.
If WMT rallies from $108.46 to $113.46, the call option price should rally $4.50 per contract from $34.25 to $38.75 per contract. That equates to about 90% of the stock’s $5 move.
In another example, let’s say that WMT rallies 25% by next June. This would take the stock to roughly $135.57 per share.
That would hand the stock investor a cash gain of $2,711 (25% gain).
The call option buyer would gain $26.32 per contract, which is a cash equivalent of $2,632, and less than a $100 difference to the stock buyer’s gain.
But the biggest kicker is the percentage gain for the call option buyer, which would be 77% ($2,632 gain/$3,425 investment).
That’s more than triple the stock buyer’s return on investment, and the option buyer is saving over $7,400 in upfront costs.
What a great deal!
In case you’re wondering how to calculate the option buyer’s dollar gain, you take the stock’s ending price of $135.57 and subtract the strike price from it: $135.57 – $75 = $60.57.
Then subtract the initial cost: $60.57 – $34.25 = $26.32 net gain.
Buying DITM call options is a great substitute for buying stock shares. It can be done for any stock that offers options trading.
But remember, it can cut both ways — if the stock falls, the call option value will fall too. But the call option value can lose a lot less. That’ll help you sleep better at night.
Until next time…