HD Analysis

The Home Depot Inc. (HD)

I have entered a short iron fly spread on HD, using options that trade for the last time 42 days hence, on Dec. 21. The premium is a $9.26 credit per contract/share and the stock at the time of entry was priced at $185.72 per share.

I entered the trade to coincide with an earnings announcement on Tuesday, Nov. 13, before the opening bell.

The profit zone for this position is between $194.26 on the upside and $179.26 on the downside.

Implied volatility stands at 29%, which is 1.6 times the VIX, a measure of the volatility of the S&P 500 index.

HD’s IV stands higher than 49% of its daily readings over the past year.

The price used for analysis was $185.65.

Premium: $9.26 Expire OTM
HD-iron fly Strike Odds Delta
Long 200.00 84.0% 17
Break-even 194.26 66.5% 36
Short 185.00 49.0% 54
Short 185.00 51.0% 46
Break-even 179.26 66.0% 32
Long 170.00 81.0% 17

The premium is 61.7% of the width of the position’s wings.

The risk/reward ratio is 0.6:1, with maximum potential loss at $574 per contract and maximum potential profit at $926 per contract.

The bid/ask spread was 7.4%.

By Tim Bovee, Portland, Oregon, Nov. 9, 2018


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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