How Option Traders Doubled Their Money on This Home Improvement Stock

Short-term HD options were attractively priced at the time of the trade

by Lillian Currens

Published on Feb 7, 2019 at 4:33 PM

Subscribers to Schaeffer's Weekly Options Countdown doubled their money with the Home Depot Inc (NYSE:HD) weekly 2/1 175-strike call. Here's a quick look at why we expected an outsized move from the home improvement retail stock, and how the profitable options trade unfolded.

At the time of our recommendation on Sunday, Jan. 27, HD had already added 5% in 2019, and had just conquered its 80-day moving average for the first time since October. This trendline had contained the stock's pullback last August, and once again served as an area of support for HD. The security also began forming a bullish inverse head-and-shoulders pattern, and the expiration of heavy call open interest at the weekly 1/25 180-strike meant a layer of options-related resistance was no longer in play.

Based on HD's Schaeffer's Volatility Index (SVI) of 22%, which sat in the 29th percentile of its annual range, near-term options appeared attractively priced at the time of our recommendation. Plus, the equity's sported a Schaeffer's Volatility Scorecard (SVS) of 88 out of a possible 100, indicating that the blue chip had had no problem exceeding options traders' volatility expectations over the past 12 months.

In the wake of our recommendation, HD stock extended its run higher. Our recommended weekly calls achieved their target profit of 100% in just three sessions.  

HD chart WOC rec


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