Analysts, Options Traders Take Aim at HD and LOW Stocks

HD calls have been popular, while options traders have preferred puts on LOW

Josh Selway
Nov 12, 2018 at 9:12 AM
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Brokerage firm RBC this morning cut its price target on Home Depot Inc (NYSE:HD) and Lowe's Companies, Inc. (NYSE:LOW) stocks to $208 and $110, respectively, saying there's concern a decline in home prices could weigh on shares of both companies -- though it admitted this threat has yet to materialize. An analyst at J.P. Morgan Securities followed suit by lowering their HD price target to $208, and their price target on LOW to $108.

The analyst attention is notable because not only are the retailers gearing up for the all-important holiday season -- in which historically they've performed well -- but earnings are also approaching. In fact, Home Depot is scheduled to release third-quarter results before the open tomorrow, Tuesday, Nov. 13.

On the one hand, HD earnings may make some traders nervous, since the shares have traded lower the day after reports in the past three straight quarters. At the same time, the last positive reaction came in this quarter last year. Overall, the security has averaged a modest 1.4% one-day swing after earnings in the past eight quarters, but this time the options market is pricing in a single-session move of 5.1% for tomorrow's trading.

Taking a closer look at recent options activity on Home Depot, calls have been popular. For example, the front-month November 190 call saw the largest increase in open interest during the past 10 days, and data from the major options exchanges show a split of buying and selling at the strike.

This price point is home to the equity's 200-day moving average, which it breached for the first time in a year, last month. HD's year-to-date breakeven point is also right near this level. The shares settled at $185.99 last week.

Moving on, Lowe's doesn't report earnings until next Tuesday, Nov. 20, but it's worth pointing out options traders have been targeting puts in the meantime. Looking at the largest open interest additions in the past two weeks, a number of puts in the November and December series have seen notable increases. The top spot went to the November 90 put, where it would seem traders were mostly buying to open positions.

On the charts, LOW stock closed last week at $96.82, right at its 200-day moving average. The shares actually bounced right at their year-to-date breakeven point late last month, though they're still staring up at their late-September peak of $117.70.

 


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