HD Analysis

The Home Depot Inc. (HD)

Update 11/14/2017: HD’s earnings did slightly better than analysts expected, coming in at $1.8354, compared to the forecast of $1.81. The price opened down $1.71 at the opening bell after the announcement. I exited for a loss.

The Zacks earnings surprise predictor algorithm, at 0.57, suggested that there would be an earnings surprise, in the context of  a bullish score (2) and a beta of 1.08.

The share price rose by $2.71 from the pre-earns closing bell to the first close after earnings were published, 13 cents more than the average move of the four prior quarters and 6 cents beyond the central tendency.

Shares declined by 1.4% over my one-day holding period, or a -614% annual rate. The options position produced a -21.2% loss for a -7,718% annual rate.

HD publishes earnings on Tuesday before the opening bell.

I shall use options that trade for the last time 32 days hence, on Dec. 15.

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

HD’s IV stands in the 71st percentile of its annual range and the 86th percentile of its most recent broad movement.

The price used for analysis was $165.94.

Premium: $1.79 Expire OTM
HD-vertical Strike Odds Delta
Long 165.00 60.4% 28
Break-even 161.79
Short 160.00 52.4% 45

The premium is 36% of the width of the position’s wings.

The risk/reward ratio is 1.8:1.

The short strike is $6.14 above the at-the-money price at entry. The biggest immediate move after each of the past four earnings announcements was $4.09, to the downside, and the average was $2.58. After eliminating the maximum and minimum post-earnings movements, the central tendency is $2.65. Half of the last four earnings announcements produced upside moves the next trading day.

The bid/ask spread is 5.0%.

Decision for My Account

I have entered a position on HD as described above. The stock at the time of entry was priced at $166.14.

By Tim Bovee, Portland, Oregon, November 13, 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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