Dan Nathan's Wal-Mart Trade

Dan Nathan recommended on CNBC's Options Action a bearish options strategy in Wal-Mart Stores, Inc. WMT. He thinks that the stock is going to give up most of its recent gains after the company reports earnings on February 18, because he believes that it is going to cut the full-year guidance.

In order to make a bearish bet, Nathan wants to buy the February 19, 65-strike put. He priced the trade when the stock was trading at $64.60 and it was possible to buy the put for $2.20. By the end of the session the stock traded lower and the February 19, 65-strike put closed at $2.84. With a premium of $2.84, the trade breaks even at $62.16 or 2.14 percent lower from the closing price of $63.52.

If the stock declines to its down trend line, Nathan would turn the trade into a put spread, by selling a lower strike put.