HD Analysis

The Home Depot Inc. (HD)

Update 5/16/2017: HD gapped to the upside after earnings were published, and I exited for $3.67, or 25% of maximum potential profit.

Shares rose by 1.4% from my entry a day earlier, or a +517% annual rate. The options position produced a 33.2% yield on debit for a +12,134% annual rate.

HD publishes earnings on Tuesday before the opening bell.

I shall use the series of weekly options that trade for the last time 11 days hence, on May 26.

Implied volatility stands at 22%, which is 2.1 times the VIX, a measure of the volatility of the S&P 500 index.

HD’s IV stands in the 60th percentile of its annual range and the 90th percentile of its most recent broad movement.

The price used for analysis was $157.02.

Premium: $5.01 Expire OTM  
HD-iron fly Strike Odds Delta
Long 167.50 937.0% 7
Break-even 162.51
Short 157.50 54.1% 48
Short 157.50 45.7% 52
Break-even 152.01
Long 147.00 91.3 8

The premium is 49% of the width of the position’s wings.

The risk/reward ratio is 1.1:1.

Decision for My Account

I have entered a position on HD as described above. The stock at the time of entry was priced at $157.00.

By Tim Bovee, Portland, Oregon, May 15, 2017

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