Walmart (WMT) is facing headwinds with looming tariffs likely to erode profit margins amid an already overstretched valuation. The retail giant, a leader in the defensive sector, trades at a substantial premium, raising concerns about downside risk as global trade tensions mount. With technical rejection and elevated implied volatility (IV) offering attractive premiums, this set-up presents a timely opportunity for bearish exposure to capitalize on WMT’s vulnerabilities. Trade Timing The timing for adding bearish exposure to WMT is optimal, as the stock recently rejected its $100 area of resistance. This rejection, combined with negative divergence with momentum suggests buyer exhaustion. We have an immediate downside target of $91, offering an attractive risk-to-reward profile for a short position. Fundamentals WMT trades at a considerable premium to the retail industry despite growth rates and margins that align with the sector, highlighting substantial valuation risks. Forward PE Ratio: 37.4x vs. Industry Average 18x Price to Sales Ratio: 1.2x vs. Industry Average 0.5x Expected EPS Growth: 9% vs. Industry Average 9% Expected Revenue Growth: 4% vs. Industry Average 5% Net Margins: 2.7% vs. Industry Average 2.4% Bearish Thesis Tariff Impact on Margins : Rising tariffs, particularly with potential US-China trade tensions, are likely to increase input costs, squeezing WMT’s already thin margins. Limited Growth Upside : WMT’s expected EPS and revenue growth (8.97% and 4.19%) are nearly in line with industry averages (9.02% and 4.98%), offering little justification for its premium valuation. The trade To capitalize on WMT’s potential downside, I’m selling a July 25, 2025 $98/$103 Call Vertical @ $2.08 Credit. This entails: Selling the July 25, 2025 $98 call @ $3.15 Buying the July 25, 2025 $103 call @ $1.07 The maximum reward is $208 if WMT is below $98 at expiration. The maximum risk is $261 if WMT is above $103 at expiration. The breakeven point for this trade is $100.08. View this Trade with Updated Prices at OptionsPlay This strategy positions you to benefit from WMT’s potential downside, leveraging its optimal timing, overvalued fundamentals, and tariff-related margin pressure to profit from selling premium with defined risk. With its premium valuation at risk, this call vertical offers a compelling opportunity to capitalize on a potential decline in WMT stock. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
