Walmart (WMT) reported earnings last Thursday and beat expectations on earnings per share ($0.67 vs. expected $0.64) and revenue ($169.33 billion vs. $168.56 billion), pushing the stock up about +8%. Since then, it has been consolidating between $72.50 and $74.

Although I believe WMT could see a slight pullback, my PFP (Positioning, Flows and Price Action) system tells me the path of least resistance is up.

This creates a great opportunity for options trading.

Let me show you how I would trade it.

Currently, I see capital flows increasing to at least $80 in the coming months. And looking at the updated price targets from analysts after releasing their results, I see that over 75% of them are choosing price targets above $80, with some even going as high as $85.

Granted, these are year-end targets, and some of them have been pushed out 12 months, but I think WMT will make a run at $80 before then. The only economic events that could dampen this positive enthusiasm would be a) a bearish outcome from the Jackson Hole Symposium (August 22-24), b) an escalation of the Israel-Iran conflict, or c) the FOMC on September 18. If these are bullish, I expect WMT to be printed at $80, or perhaps even higher.

But now the question is how would I trade it and when would I expect such a move. The challenge with the current price ($73.81 at the time of writing) is that we are “between” two key position levels (70 and 75) which you can see in the chart above. $75 is the TCS (Top Call Strike) and $70 is the TGS (Top Gamma Strike). Between these two, the positioning is not quite as strong, so it is not a stable place to park. The good thing is that since the earnings release, the price action has been consolidating between $72.50 and $74 for 3 sessions now. The longer it stays at these levels, the more likely OTM strikes will come, thus consolidating around the current tight range, thus strengthening current prices.

I would prefer to see WMT fall to $70 because that would give me a great upside risk/reward potential that would allow me to target $75 in the short term and $80 in the medium term. But what happens if it falls to $75 first and never gets back to $70? At that point, I would look to enter a long position targeting $80 but pushing the expiration to October or maybe November.

As for how I want to trade this, I’m thinking about a bull call spread or looking at longer-term calls with longer expiry and maybe pushing them a little further OTM (out of the money) to reduce costs and theta decay. As long as WMT doesn’t lose $70, I’ll maintain a bullish bias and expect more upside after earnings.

If you want to learn more about how I trade this live, you can watch the Benzinga Option School or Trading Waves where I chat live 5 days a week sharing trading ideas, option flows, and key position levels.

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