HD – The Home Depot, Inc. – The home improvement supplies retailer attracted bearish options strategists throughout the trading session with shares of the underlying stock slipping into the red this afternoon to stand 0.30% lower on the day at $28.54 as of 2:45 pm (ET). It looks like some investors expecting shares to decline and remain depressed for the next couple of months sold approximately 10,000 calls outright at the August $28 strike for an average premium of $1.95 apiece. Investors selling the calls keep the premium received on the sale as long as Home Depot’s shares trade below $28.00 through expiration day in August. Another pessimistic player with a longer-term bearish view on the stock initiated what appears to be a large-volume credit spread in the November contract. The investor looks to have sold 10,300 calls at the November $37 strike for a premium of $0.14 apiece, and purchased the same number of calls at the higher November $40 strike for an average premium of $0.04 each. The trader pockets a net credit of $0.10 per contract on the trade and keeps the full amount if, by November expiration, shares of the underlying stock fail to rally above $37.00. The parameters of the spread dictate maximum potential losses of $2.90 per contract for the investor should shares jump 40.15% over the current price to exceed $40.00 by expiration day. Losses start to accumulate for the credit spreader if HD shares rally 30% to surpass the effective breakeven price of $37.10 ahead of expiration day in November.
Affiliation: Interactive Brokers
Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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