7.8 C
New York
Saturday, December 2, 2023

Traders Construct Bullish Positions Ahead Of Home Depot Earnings

Today’s tickers: HD, IBM, AVP & AREX

HD – Home Depot, Inc. – Options on Home Depot are among the most actively traded among single U.S. stocks ahead of the company’s third-quarter earnings release before the opening bell tomorrow. Shares in the home improvement retailer increased as much as 1.3% in the first half of the session to a new six-month high of $38.54, but currently trade flat on the day at $38.06 as of 12:05 PM in New York. Options traders have exchanged more than 65,000 call and put options on the stock, but are so far favoring calls, with more than 3.8 of the contracts changing hands for each single put in play today. Trading traffic is heaviest at the Nov. $39 strike, where more than 22,000 calls have traded against open interest of 7,424 positions. It looks like the majority of these calls were purchased for an average premium of $0.43 per contract. Call buyers may profit at November expiration later in the week should shares in Home Depot rally 3.6% over the current price of $38.06 to surpass the average breakeven point on the upside at $39.43. Shares in Home Depot last traded above $39.43 back in February. Options implied volatility on the stock is up 11.8% to stand at 30.6% ahead of earnings.

IBM – International Business Machines, Inc. – IBM options are humming with activity today following billionaire investor Warren Buffett’s interview on CNBC’s Squawk Box. Shares in IBM rallied 1.3% to $189.84 at the start of the session after Buffett revealed that Berkshire Hathaway acquired a 5.5% stake in the company, mostly during the third quarter. The acquisition of IBM stock reportedly cost Buffett’s cash-rich company $10.7 billion for 64 million shares. Investors positioning for shares in IBM to continue to climb this year snapped up call options in the December expiry. It looks like investors picked up 1,500 calls at the Dec. $190 strike for an average premium of $4.81 apiece, and purchased another 1,700 calls at the higher Dec. $200 strike at an average premium of $1.09 a-pop. Call buyers are prepared to profit should IBM’s shares rally another 2.6% and 5.9% to surpass the average breakeven prices of $194.81 and $201.09, respectively, by expiration day next month. Meanwhile, the purchase of a roughly 2,000-lot Nov. $185/$190 put spread at an average net premium of $1.74 per contract indicates at least one strategist is prepared should Big Blue’s shares slip ahead of expiration on Friday. The trader may walk away with maximum potential profits of $3.26 per contract if shares in IBM pull back to trade below $185.00 at expiration.

AVP – Avon Products, Inc. – A one-year chart showing the performance of shares in the maker of hygiene and beauty products is not a pretty picture. Shares in Avon Products plunged more than 40.0% from their May 3, 52-week high of $31.60 to secure a fresh two-year low of $17.55 on the first of November. The stock’s decline accelerated at the end of October after the beauty products manufacturer reported disappointing third-quarter results and said the SEC is launching a formal investigation of the company. Shares in AVP are today lower by 1.25% to arrive at $18.00 as of 11:25 AM in New York. The stock may be in the red this morning, but it appears one trader is betting that shares in Avon will avoid recording fresh lows through the end of the calendar year. It looks like the investor sold 17,400 puts at the Dec. $16 strike for a premium of $0.20 apiece. The trader keeps the full amount of premium as long as shares in Avon Products exceed $16.00 through expiration day in December. The investor runs the risk of having 1.74 million shares of the underlying stock put to him at an effective price of $15.80 in the event that the puts land in-the-money at expiration next month.

AREX – Approach Resources, Inc. – Fresh prints in Approach Resources put options this morning suggest one strategist is prepared to potentially benefit from a sharp pullback in the price of the energy company’s shares by January 2012 expiration. AREX shares are currently down 3.1% to stand at $29.06 as of 10:35 AM ET. The bearish player appears to have purchased a 2,000-lot Jan. 2012 $20/$25 put spread for a net premium of $1.35 per contract. The spread positions the trader to profit in the event that shares in AREX fall 18.6% from the current price of $29.06 to breach the effective breakeven point on the downside at $23.65 by expiration next year. Maximum potential profits of $3.65 per contract are available to the investor should shares in the Fort Worth, Texas-based company plunge 31.2% to trade below $20.00 at expiration in January. Shares in Approach Resources last traded below $20.00 back on October 11. The investor responsible for the spread could be long the stock, buying the put spread to protect recent gains, given the roughly 110.0% move to the upside in AREX shares during the past six weeks. Shares in the oil and gas company surged to a six-month high of $30.09 on Friday, more than doubling in price since the stock hit a 52-week low of $14.14 on October 4.

Caitlin Duffy

Equity Options Analyst

Notify of
Inline Feedbacks
View all comments

Stay Connected


Latest Articles

Would love your thoughts, please comment.x