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Options activity on Wal-Mart suggest 'buy on the dip'
NEW YORK, April 23 |
NEW YORK, April 23 (Reuters) - The options market shows that traders expect Wal-Mart shares to resume this year's rally despite a fall on Monday on a news report that the world's largest retailer stymied a probe into bribery at its Mexican affiliate, Wal-Mart de Mexico.
Options trading volume on Wal-Mart Stores Inc soared to about four times the average daily, with 32,000 puts and 36,000 calls traded by midday, according to options analytics firm Trade Alert.
"It looks like the most traded options - May $62 calls and June $62.50 calls - have a higher percentage on the ask side than the bid side, which is saying there is a bullish bias on the stock," said Todd Salamone, director of research at Schaeffer's Investment Research in Cincinnati, Ohio.
"This means that most of the calls are being bought. I think it is more of a 'buy on the dip' mentality, especially since Wal-Mart shares hit a multi-year closing high last week."
Calls give the holder the right to buy shares at a specific price by a certain date, while put options give the holder the right to sell shares.
Wal-Mart shares fell 4.9 percent to $59.36 by midday trade on Monday. The stock closed at $62.45 on Friday.
Shares of affiliate Wal-Mart de Mexico, Walmex, were down 11 percent at 38.33. The drop has wiped out the year-to-date gains in the stock, which had been up 12 percent through Friday.
The New York Times this weekend reported that the world's largest retailer stymied an internal probe into bribery at its Mexican affiliate, in the middle of the last decade. The allegations if true could be violations of the Foreign Corrupt Practices Act (FCPA), a U.S. law that forbids the payment of bribes to foreign government officials.
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