Call Options Or Put Options On Home Depot (HD)?

| May 21, 2014 | 0 Comments

HD OptionsHome Depot (HD) is the world’s largest home improvement chain. The company reported earnings this week in one of the last, widely followed earnings results of the season.

HD shares are currently trading at $77.85, down 5% year-to-date. The stock’s down 6% from the 52-week high of $82.73 and is 9% above the 52-week low of $71.27.

Is this an opportunity to buy call options on HD due to the company’s strong May? Or should you buy put options on HD because the company reported weaker than expected revenues?

The bulls make a convincing argument…

HD is closely tied into the US housing market. Much of its business comes from building contractors and households doing home and garden improvements.

So, it was very good news for the company that its May sales were robust. That means the weak revenue results from the prior quarter were due mostly to weather and not a slowdown in housing.

Moreover, the company raised its full-year earnings forecast to $4.42 per share, up from $4.38. That doesn’t seem like a company worried about a housing slowdown.

But the bears have a compelling case as well…

Although HD doesn’t appear to be worried about the housing market, several analysts are still concerned. Keep in mind, US homebuilder sentiment showed a surprise decline in May to the lowest point of the year.

And let’s not forget, the company did miss on revenues. Analysts expected $19.95 billion, and results came in at $19.69 billion. HD still has to make up that ground if it wants to meet full-year projections.

The housing recovery will likely need to pick up steam in order for HD to regain lost ground. That’s certainly not a sure thing.

So is it time to be bullish on HD because of its May results, or should you take a bearish position because the housing recovery is in trouble?

If you think the bulls are right, take a look at buying the HD July $77.50 calls for around $1.80.

If you think the bears are right, take a look at buying the HD July $77.50 puts for around $1.90.

Yours in Profit,

Gordon Lewis

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Category: Call Or Put Options?

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.