Shares of home improvement retailer The Home Depot (HD) are down about in-line with the market over the past year. One trader sees a further drop in the weeks ahead.
That’s based on the February 2023 $290 put. With 60 days until expiration, 13,502 contracts traded compared to a prior open interest of 311 for a 41-fold jump in volume on the trade. The buyer of the puts paid $4.03 to make the bearish bet.
Home Depot shares recently traded just over $325, so the stock would need to drop about $35, or just over 10 percent, for the trade to move in-the-money. The strike price is still well over the stock’s 52-week low of $265 per share.
Despite a slowing economy and lower consumer spending overall, Home Depot managed to grow revenues and earnings by about 5 percent over the past year.
Action to take: Investors may want to pick up shares on any drop under $300, as the stock tends to bounce strongly.
At a price of $300, shares would yield close to 2.5 percent, and the company has been fairly good about raising its dividend over time, although not as consistently as other dividend-growth stocks.
For traders, the put option is a reasonable short-term bet, especially after last week’s retail numbers. Chances are the sector will see a drop as the holiday season numbers come into clearer picture in the weeks ahead.
The puts can likely deliver high-double-digit returns, and could also serve as an overall market hedge in the coming weeks.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.