Shares of
Home Depot (HD) slid nearly 7 percent on Tuesday following the company’s latest earnings report and outlook. One trader sees shares trending lower in the coming months.
That’s based on the April $270 puts. With 57 days until expiration, 5,766 contracts traded compared to a prior open interest of 131, for a 44-fold rise in volume on the trade. The buyer of the puts paid $4.58 to make the bearish bet.
Shares slid to about $296 following the earnings report, so Home Depot would need to drop another $26, or just under 10 percent, for the options to move in-the-money. The strike price is also close to the stock’s 52-week low of $264.51.
The home improvement retailer is a large-cap play with low, but fairly steady, growth ahead of it. While the company’s outlook was poor, it beat on earnings and just upped its dividend – so any short term drop in the stock from here is likely temporary.
Action to take: Interested investors have their best entry point in three months, and shares could get a bit cheaper in the coming sessions. Thanks to the recent drop, shares now yield about 2.4 percent.
For traders, the puts are a reasonable bet in the next few weeks as shares settle, with a mid-double-digit profit potential. However, traders will likely want to take a quick profit and bet on a rebound after that.
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 of the companies mentioned in this article.