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The Home Depot, Inc. (HD) Traders Gamble On Round-Number Support

The Home Depot, Inc.'s July 80 call is being bought to open today

by 6/23/2014 2:02 PM
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Option Brief: The Home Depot, Inc. (NYSE:HD) is one of the biggest leaders among Dow Jones Industrial Average components this afternoon, with the shares up 0.6% in the wake of this morning's better-than-expected existing home sales data. Not surprisingly, calls are trading at nearly three times the intraday average, and are outstripping puts by an almost 4-to-1 margin. The security's 30-day at-the-money implied volatility (IV) is up 9.1% to 14.2%, pointing to accelerated demand for HD's short-term options.

Specifically, the most active strike is HD's July 80 call, where 7,468 contracts are on the tape. (As a point of comparison, fewer than 2,250 contracts have traded at the next most popular strike.) The majority of the calls went off at the ask price, IV is trending higher, and volume exceeds current levels of open interest -- all indications of buy-to-open activity. Based on HD's current price of $80.68, these calls are in the money. Meanwhile, according to the option's delta of 0.59, there is a roughly 3-in-5 chance the call will be trading north of the round-number $80 mark at the close on Friday, July 18, when front-month options expire.

Regardless of where The Home Depot, Inc. (NYSE:HD) closes at July options expiration, the most today's traders stand to lose (if the call expires out of the money) is 100% of the premium paid. Good news for today's call buyers -- HD's Schaeffer's Volatility Index (SVI) of 13% ranks just 3 percentage points above an annual low, meaning premium on HD's front-month options is relatively inexpensive at the moment.


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