Options Traders Target Home Depot Inc, Lowe's Companies, Inc. as Hurricane Matthew Nears

Home Depot Inc and Lowe's Companies, Inc. are both seeing heavy options activity with Hurricane Matthew set to hit Florida

by Josh Selway

Published on Oct 6, 2016 at 1:49 PM

It appears Hurricane Matthew -- which is set to hit Florida's east coast this evening -- could be putting the spotlight on home improvement retailers Home Depot Inc (NYSE:HD) and Lowe's Companies, Inc. (NYSE:LOW), as at-risk residents rush to make last-minute preparations. In its coverage of the storm, CNBC called out Home Depot in particular, saying the company has been "delivering hundreds of loads" to local stores to restock its shelves. Sure enough, both stocks are seeing unusual options volume this afternoon, so let's take a look at how traders are positioning themselves on HD and LOW. 

At last check, HD call options were trading at 1.5 times the intraday norm, easily outpacing puts for the day. The most popular option overall is the weekly 10/14 131-strike call, and data suggests buy-to-open activity is taking place -- meaning traders are betting on HD topping $131 before next Friday's close, when the contracts expire. The next most popular option is the weekly 10/7 129-strike call, with traders seemingly betting on extended upside through expiration at tomorrow's close. 

Call buying is not unusual in HD's options pits, though. During the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has racked up a call/put volume ratio of 1.22, which is higher than two-thirds of the past year's readings. Said simply, call buying has been more popular than normal lately, relative to put buying. 

This optimism comes as Home Depot Inc continues to enjoy support from its rising 320-day moving average. At last check, shares of HD were up 1.4% at $129.34 -- the top percentage gainer on the Dow -- sitting just a chip-shot from their 2016 breakeven mark of $132.25. 

As for LOW, options volume is running at six times what's normally seen at this point in the day -- on pace to close in the 97th percentile of its 12-month range. Puts have a healthy lead over calls, with 19,335 of the former and 14,390 of the latter on the tape. 

Nevertheless, the most popular LOW option overall is the November 72.50 call. It looks as though traders are buying to open positions here, too, betting on LOW to top the $72.50 mark by November options expiration. At the same time, the stock sports an elevated 10-day call/put volume ratio of 3.18 at the ISE, CBOE, and PHLX -- in the 77th annual percentile -- so call buying is nothing new from LOW options traders. 

Lowe's Companies, Inc. isn't enjoying HD's success on the charts today, though. The shares were last seen 0.7% lower at $71.74 -- likely a result of a downgrade to "neutral" from "buy" at Cleveland Research -- as they struggle to recover from August's post-earnings sell-off. In fact, LOW just posted its first close below its 20-month moving average since October 2011, and is down 5.7% year-to-date. 

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