HD Analysis

The Home Depot Inc. (HD)

Update 8/15/2017: HD’s earnings came in about where expected, at $2.24 per share, compared to the consensus forecast of $2.25. Shares fell about $1 in the first five minutes of trading after earnings were published. i exited at 26.8% of maximum potential profit.

Shares rose by 0.1% over my one-day holding period, or a +21% annual rate. The options position produced a +36.6% return for a +13,349% annual rate.

I chose to enter HD in part because Zacks Investment Research‘s earnings surprise predictor was 0.45%, narrow there than the -2% to 2% range that I’m allowing in my screening. The indicator proved to be a good predictor of  the outcome.

HD publishes earnings on Tuesday before the opening bell. 

I shall use options that trade for the last time 11 days hence, on Aug. 25.

Implied volatility stands at 22%, which is 1.8 times the VIX, a measure of the volatility of the S&P 500 index.

HD’s IV stands in the 66th percentile of its annual range and the 75th percentile of its most recent broad movement.

The price used for analysis was $154.18.

Premium: $4.78 Expire OTM  
HD-iron fly Strike Odds Delta
Long 162.50 88.9% 12
Break-even 159.78 ~80.7% ~21
Short 155.00 55.8% 46
Short 155.00 44.0% 54
Break-even 148.78 ~75.1% ~23
Long 144.00 87.8% 11

The premium is 52% of the width of the position’s wings.

The risk/reward ratio is 1.1:1.

Decision for My Account

I have entered an order on HD as described above. The stock at the time of entry was priced at $154.21.

By Tim Bovee, Portland, Oregon, Aug. 14, 2017


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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