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Weekly Options Constructive On Home Depot

Today’s tickers: HD, IMAX & DOV

HD - Home Depot – Shares in the home improvement retailer are trading lower on Thursday, off the lowest levels of the session but still down 1.25% at $78.69 as of 11:50 a.m. ET, amid a down day for U.S. stocks. Trading traffic in newly issued weekly options on Home Depot suggests some traders are taking advantage of the dip today and positioning for shares in the name to resume hitting record highs next week. The stock yesterday rallied as much as 3.6% to touch an all-time high of $81.56 after the company reported better-than-expected first-quarter earnings and raised its full-year earnings forecast. Traders preparing for shares in HD to potentially rebound in the near term looked to the May 31 ’13 expiry options contracts, and appear to have purchased calls and sold puts on the stock. Call buyers snapped up roughly 1,000 calls at the May 31 ’13 $77.5 strike for an average premium of $1.27 each, and around 500 lots at the $80 strike at an average premium of $0.28 apiece. These contracts make money at expiration next week as long as shares in Home Depot recover from today’s slight declines. Meanwhile, fresh interest in weekly puts appears to be largely driven by sellers of the contracts. It looks like traders sold around 900 in-the-money puts at the May 31 ’13 $80 strike in the early going for an average premium of $2.09 each. Sellers of the contracts walk away with the full amount of premium at expiration should shares in HD settle above $80.00. Several hundred contracts appear to have been sold at the May 31 ’13 $77.5 and $82.5 strikes as well.

IMAX - IMAX Corp – Put options changing hands on the entertainment technology company this morning look for shares in IMAX to potentially head lower during the next four weeks. Shares in the name are down 1.5% in early-afternoon trading to stand at $27.60 as of 12:20 p.m. in New York. The most traded contracts on IMAX this morning were the Jun $27 strike puts, with around 1,700 lots in play versus open interest of 1,464 contracts. Time and sales data suggests most of the volume traded was purchased for an average premium of $0.90 each. Traders long the puts stand ready to profit at expiration next month in the event of a more than 5.0% decline in the stock to 26.10. The company presented at the Barclays Global Technology, Media and Telecommunications Conference in New York this morning.

DOV - Dover Corp – Shares in Dover rallied 5.0% to a record high of $80.36 today after the company announced that its Board of Directors approved a plan to spin off portions of its communication technologies businesses to form an independent, publicly traded company called Knowles Corporation. Options traders looking for the stock to extend gains stepped in to buy upside calls on DOV within the first 30 minutes of the opening bell. The Jun $80 strike calls are the most active contracts by volume so far today, with upwards of 1,000 lots traded against open interest of 408 contracts. It looks like most of the $80 calls were purchased this morning for an average premium of $1.52 each. Call buyers make money if shares in Dover rally 2.4% over the current price of $79.60 to surpass the average breakeven price of $81.52. The Jul $85 calls were active in the early going as well, with around 225 contracts purchased for an average premium of $0.78 apiece. Traders long the $85 calls profit at July expiration if the price of the underlying soars 7.8% to top $85.78.

 

Caitlin Duffy
Equity Options Analyst


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