Home Depot (NYSE:HD) call spread in August, the earnings month


Shares of Home Depot (NYSE: HD ) are outperforming the market today, up more than 1.5%, while the broader market is up closer to 0.7% as measured by the S&P 500 Index.  Call volume that we are seeing this afternoon suggests an investor is willing to bet that there might be more upside to come.  At around 2:30 p.m. EST, we saw large volume in the August 32 and 36 calls.  All told, we see more than 20,000 of each option have traded on the day.  This action was a bull call spread, where the investor bought the 32 calls for 67 cents and sold the 36 calls for 4 cents.  So they paid a net price of 63 cents for the spread,  or $1.26 million for the 20,000-lot.   Looking at the open interest, we see that the 36 calls have open interest of 22,838.  This makes it quite possible that this spread was executed by a trader who owned the 36 calls, but they had gotten so far out-of-the-money that they wanted to sell them, and roll down to the 32 strike.  Either way, they still need the shares to rally to make money.

One thing that is noteworthy about this trade is that while HD has not confirmed when they will release their next quarterly results, it is likely to be around August 17, which is the last week before these options expire.  HD typically reports toward the end of the traditional earnings season, and this year should be no exception.   There has been nothing but negative news on housing stocks this week, and given HD's position in the homebuilding and improvement sector, that probably explains why the shares had sold off more than the market this week.  But with this roll, at least one investor is putting a stake in the ground and calling for a rally in the shares.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Options

Referenced Stocks: HD

Jud Pyle

Jud Pyle

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