UPDATE 1-Options activity on Wal-Mart suggests 'buy on the dip'
NEW YORK, April 23 (Reuters) - The options market shows traders expect Wal-Mart shares to resume this year's rally despite falling on Monday on a news report that the world's largest retailer stymied a probe into allegations of bribery at its Mexican affiliate, Wal-Mart de Mexico.
Options trading volume on Wal-Mart Stores Inc soared to about seven times the average daily on Monday, with 73,000 calls and 46,000 puts traded, 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 closed down 4.7 percent at $59.54 on Monday.
"We've had a correction in the stock price, and the stock price - based on what we know and our strong belief that this is not going to affect the business of the company - suggests that the stock is very buyable here," said Lawrence Haverty, a portfolio manager at Gamco Investors Inc, which has $34.1 billion in assets under management.
Shares of Wal-Mart de Mexico, known as Walmex, fell more than 12 percent on Monday, wiping out the year-to-date gains.
The New York Times this weekend reported that Wal-Mart stymied an internal probe into allegations of bribery at Walmex in the middle of the last decade. The allegations if true could be violations of the U.S. Foreign Corrupt Practices Act, which forbids the payment of bribes to foreign government officials.
"This is not helpful. But whatever the eventual outcome, the monetary fine - if they're proven guilty - they can certainly handle," said Damian Witkowski, an analyst at GAMCO.