Walmart Shows Huge Call Option Activity - Has WMT Stock Peaked?

Large, unusual call options volume in Walmart traded on Thursday at less than 2% over the spot price. Do short sellers of the calls believe WMT stock has peaked, or are call buyers right assuming it could rise further?

WMT closed at $79.66 on Thursday, Sept. 12, up $11.00 from $68.66 on Aug. 14. That represents a 16% gain in the past month. On Aug. 15, Walmart released its stellar fiscal Q2 2025 results for the quarter ending July 15.

Unusual Call Trading Volume in WMT 

The Barchart Unusual Stock Options Activity Report today shows that over 23,000 call options contracts traded at the $81.00 strike price for expiration in 3 weeks on Oct. 4.  This is over 222 times the prior outstanding number of contracts at this strike price.

The table above shows that investors were willing to pay 75 cents in the mid-price for this call option which is just 1.68% over today's price.

The market has been impressed with Walmart's growth. And why not? The table below shows its achievements in the quarter.

Walmart's Strong Quarter and Free Cash Flow

In addition, Walmart showed strong free cash flow (FCF), albeit lower than last quarter, despite higher capex spending. Walmart generated $5.85 billion for the 6 months ending July 31. That was $3 billion lower than last year, but it still represents a positive number despite higher capex spending. That can be seen in the table below.

Moreover, Walmart's FCF margin (i.e., the percentage that FCF represents of sales) was high at 1.8% (i.e.,$5.85 billion/$330.8 billion) for the first half and the last 12 months (LTM), i.e., $12b/$665b in sales. That implies its FCF could rise further next year.

For example, analysts now project that sales next year will rise almost 4.3% from $673 billion for the year ending Jan. 31, 2025, to $701.8 billion. So, applying a 1.8% FCF margin to this 2026 revenue estimate produces $12.63 billion, up from $12 billion in the last 12 months. That implies that its value could be a bit higher. 

Target Price for WMT Stock

For example, right now Walmart has a market cap of $640.3 billion. So, dividing its LTM FCF of $12 billion, the LTM FCF (see above) leaves WMT stock an FCF yield of 1.87% (i.e., $12b/$640.3b = 0.01874).

As a result, WMT stock could now be worth $701.7 billion sometime over the next year (i.e., $12.63b forecasted for FY 2026 / 0.018 = $701.667b). This is $60 billion higher than its present $640.3 billion market cap, or +10% higher (i.e., $701.7b/$640.3b-1 = 0.096).

This means that the price target for WMT stock is 1.096 x $79.66 today or $87.31 per share.

Are Calls Worth Buying Here or Shorting?

That could be why investors are so enthralled with trading in its near-term call options at the $81.00 strike price for the next 3 weeks They may believe that it's going to rise to that price target. 

The options table above shows that the call strike price is only 1.68% over today's price. That means that the call options buyers who pay 75 cents for these call options only expect WMT stock will rise over $81.75 to make a profit. That is just 2.62% over today's price (i.e., $81.75/$79.66-1=0.0262).

And that might make sense given the $87.31 price target for WMT. However, keep in mind that this is a one-year price target. It will likely only work as analysts and the market see the company is likely to make $12.6 billion in FCF. 

That might take some time. After all, it only made $5.85 billion in the first half, implying a run-rate of twice that or $11.7 billion for fiscal 2025. However, that might not be a good way to look at things, since the Christmas quarter always is more profitable and cash-flow producing. The point I am making is that call option buyer might be disappointed given how long it could take for WMT stock to rise to $87 or so.

On the other hand, covered call short sellers of these calls make some sense if existing investors believe WMT stock has peaked. The yield is almost 1.0% for the next 3 weeks (i.e., $0.75/$79.66 = 0.0094, or 94 basis points.

That works out to a quarterly expected return of 3.76% (i.e., 94 bp x 4), which is additional income for existing investors who are happy to sell at a price that is 1.68% higher than today.

The bottom line is that there are good reasons to both buy calls here (essentially at the money) and also short these calls. In any case, WMT stock looks to be about 10% undervalued at $87 per share.