Home Depot Stock Looks Set to Surge Even Higher

Short-term bets on the stock have rarely priced in lower volatility expectations

Oct 1, 2019 at 10:30 AM
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Shares of home improvement name Home Depot Inc (NYSE:HD) have been climbing the charts this year. Currently, the stock is testing support at its +10% year-over-year mark and $250 billion market cap. With a 14-day Relative Strength Index (RSI) reading of 50, another layer of support is now being added, making it the perfect time to jump onto HD’s underlying momentum moving forward.

HD WT Chart Sept 27

Short interest has been rising alongside HD shares of late. Specifically a more than 25% rise was seen during the most recent reporting period, signaling that ample sideline cash is available to help keep the wind at the equity's back. Plus, eight of the 20 covering firms still sport a tepid “hold” rating, meaning there remains plenty of room for upgrades on the stock.

Meanwhile in the options pits, there's more pessimism to be unwound. The stock's Schaeffer's put/call open interest ratio (SOIR) of 1.66 ranks 3 percentage points from an annual high. In other words, short-term speculators are more put-heavy than usual toward HD.

Plus, short-term options premiums on Home Depot stock look relatively cheap at the moment, based on the equity's Schaeffer’s Volatility Index (SVI) of 18%, which ranks in the 21st percentile of its annual range. Lastly, the shares have shown a tendency to make big moves in the past year, too, as the security’s Schaeffer's Volatility Scorecard (SVS) comes in at 87.

Subscribers to Schaeffer's Weekend Trader options recommendation service received this HD commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.


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