Credit: Shutterstock photoHome Depot has been a stellar performer, but now traders want protection as consumers retrench.
optioMONSTER's Depth Charge monitoring program today detected the purchase of 5,000 Weekly 109 puts expiring on May 29 for $2.40. Some 10,000 of the matching 105 puts were also sold for $1.15. Volume was more than 60 times open interest at both strikes, an indication new money was put to work.
Known as a ratio spread , the strategy cost $50,000 and will expand to $2 million if the home-improvement chain closes at $105 on expiration. Below that level, the trader will have to buy 500,000 shares for $105 each. (See our Education section for more on what it means to buy calls and sell puts .)
HD is down 1.85 percent to $108.54 in afternoon trading. Strong earnings drove the stock to an all-time high of $117.99 in February, but it failed to get through that level the following month and has been skidding lower since.
The move comes amid a broader trend in retail stocks as economic growth continues to slow. Confidence missed estimates yesterday and gross domestic product lagged forecasts today--partially due to poor consumer spending. The disappointments follow signs of weakness in the labor market, with non-farm payrolls well below estimates in March and jobless claims coming in higher than expected the last two weeks.
Today's put buyer is probably hedging a long position in HD shares and is willing to buy more on a drop to $105. That's roughly the same area where it consolidated before breaking out in January, which could make some chart watchers think it will now provide support. Earnings are due on May 19.
Overall option volume is triple the daily average so far in the name, with puts accounting for a bearish 78 percent of the total.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
