Mega-Cap Active Options Update: Put-Selling Activity on Wal-Mart Stores (WMT) , Long-Term Bets on B of A

Two weeks before holiday shopping kicks off with the Black Friday sales, options traders are scooping up Wal-Mart Stores (WMT) puts in the December series. Specifically, the December 52.50 put has seen more than 6,000 contracts trade today versus open interest of 7,139.

About a half hour after the opening bell, blocks totaling about 1,500 contracts traded at 90 cents apiece, going off near the ask price. But shortly before 10:30 AM Eastern Time, a block of 3,500 contracts traded at 82 cents, squarely between the bid and the ask price.

The put is currently down five cents while the underlying stock is virtually unchanged. This suggests that sellers have the upper hand, sending implied volatilities lower and pushing the put into the red more than its delta would indicate. If these out-of-the-money positions were sold to open, the investor is either expecting WMT to stay at or above current levels through December expiration, and/or is willing to acquire WMT shares at an effective price of about $51.65 (the strike price minus the average premium collected).

WMT earnings are now out of the way, as the retailing giant reported yesterday, topping estimates by three cents despite a miss on the revenue front. WMT also lifted and narrowed its guidance for fiscal year 2010. The passage of this event has sent overall implied volatility south in WMT; its front-month, at-the-money straddle was priced at $1.32 at Thursday’s close and is currently priced at $1.24. This is just 2.4% over strike, meaning the options market is pricing in a move of 2.4% (higher or lower) in the next week ahead of November options expiration.

Elsewhere in the options pits, investors are looking a few months ahead in Bank of America (BAC), trading the May 11-strike puts and the January 2011 17.50-strike calls. Both options have seen about 5,000 contracts trade today.

The May put saw block action at 10:30 AM Eastern Time, and the options traded at the ask price of 58 cents, suggesting they were bought to open. The put is currently up six cents on the day, with the underlying down six cents. As these are not 100-delta options, buying action seems to be afoot.

These puts were indicated as a spread, as they were tied to a purchase of the shares themselves at $16.10. This may have been a married put strategy, where a put is purchased against shares of the stock. Maximum loss for a long put is the premium paid for the contract.

The BAC 17.50-strike LEAPS call, meanwhile, saw one block of 5,000 contracts hit the tape at 10:10 AM, trading at the bid price of $2.83. Also marked as a spread, this may have been a buy-write (or covered call) position where an upside call is sold as a hedge against the stock position.