Home improvement store chain Home Depot (HD) is up about 12% over the past year, returning about half that of the S&P 500. One trader sees further weakness in the weeks ahead.
That’s based on the February 21, 2025 $360 puts. With 56 days until expiration, 10,548 contracts traded compared to a prior open interest of 345, for a 31-fold rise in volume on the trade. The buyer of the puts paid $3.80 to make the bearish bet.
Home Depot shares recently traded for about $393, so shares would need to drop by $33, or 8.4%, for the option to move in-the-money. The strike price is still well over HD’s 52-week low of $323.77.
Home Depot shares have been trending lower for weeks, coming off a 52-week high of nearly $440. Given that pace of a drop, it’s possible that the February $360 puts provide investors with solid returns.
Operationally, Home Depot has had a mixed year, with revenues up 6%, but earnings down 4%.
Action to take: Based on the price action, interested investors should avoid Home Depot right now. Shares likely have some more downside before they can trend higher. Investors who like the stock should look for signs of the downtrend to end before buying in.
For traders, the February 21 $360 puts are well positioned for further weakness in shares over the weeks ahead. Investors could potentially see mid-double-digit returns on the options in the weeks ahead.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.
