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Strategies & Market Trends : Tech Stock Options -- Ignore unavailable to you. Want to Upgrade?

To: donald sew who wrote (46948)	6/26/1998 3:19:00 PM
From: WBendus	Read Replies (1) \| Respond to of 58727

I am seeing what looks to be a good shorting opportunity in Wal-Mart. There has been a beautiful double top formed at 60 7/8 on the intra-day 30 minute charts spanning yesterday and today. A close below 59 1/2 would seal it. Considering that WMT trades at 36.6 times TTM earnings and 31.58 times forward earnings; is only expected to grow at a 13.5% annualized clip over the next 5 years, and yields a mere .31%, the lowest of all the DOW stocks, it could be considered to be slightly overpriced. The non-capitalized average yield of the 30 DOW stocks is 1.72%, the TTM PE is 24.43, the forward PE is 21.23 and the 5 year expected annualized growth in earnings in only 12.4%. The extra 1.1% growth that WMT is expected to generate over the DOW over the next 5 years, only produces 9% more total return at the end of that period. Various technical indicators are also somewhat supportive of a short term downturn in the stock. OBV is not supporting the most recent advances, Stochastics has deteriorated somewhat, %R turned south yesterday at an over extended point, MACD and MF are also not supporting the most recent run up in price. I expect the stock to trade to 58 Monday or Tuesday and, with softness in the market, to trade back to 56 by the end of next week. The July 60 put can be bought for $1.63 (at the ASK) and the implied volatility on the bid is 26. This would imply that if WMT dropped to 58 by Tuesday and the volatility increases by .5, the option could be sold at $2.50 for a 53% return. Should the stock make the next downside target by Friday, the option could be sold at $4.00 for a 145% return in 7 days. Considering that the market has marked tremendous gains this week, and the Yen, and now other foreign currencies remain in the spot light and show considerable signs of weakness, I believe that there is a greater that 60% chance of at least the Tuesday target being met. Any thoughts? Wayde