Shares of home improvement retailer the Home Depot (HD) dropped last week despite a great earnings report. At least one trader sees the selloff as related to last week’s market weakness, with shares likely to bounce higher.
That’s based on the June $320 calls. Over 1,032 contracts traded against a prior open interest of 101, for a 10-fold rise in volume. The option expires in one month, and the buyer of the option paid about $5.75 for the trade.
With shares just under $320, the option could likely move in-the-money in the coming sessions, leading to a further increase in price.
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The home improvement retailer has seen a boost in sales thanks to strong stay-at-home trends, which support home projects, as well as repair projects for buying and selling homes in this hot real estate market.
Despite these trends, Home Depot shares have now lagged the S&P 500 by 8 percent over the past year, and dropped heavily earlier in the month.
Action to take: Shares are trading about where they usually do in terms of valuation. This one-month trade, made after the company’s slight drop following earnings, points to a move higher in shares as the stock shakes off the larger fears surrounding the tech space.
Disclosure: The author of this article has no positions in the stock mentioned here, but may make a trade on this company after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.