Home Depot’s Stock Analysis: Upcoming Earnings and Trading Strategy
Overview:
Home Depot (HD) remains confidently above its 21-day exponential moving average, as well as the 50- and 200-day averages. Notably, as part of the Dow Jones Industrial Average, HD is slated to announce its earnings on Tuesday before the market initiates. For traders predicting a steady post-earnings performance from HD, an iron condor trade might be a worthwhile consideration.
Recent Earnings Trends:
Interestingly, post-earnings movements have seen Home Depot staying within predicted ranges after four out of its last six earnings reports. Analyzed from an IBD perspective, HD stock seems to be navigating its way out of a sizeable cup with handle pattern, eyeing a 334.97 target buy point.
Understanding the Iron Condor Strategy:
To clarify, an iron condor trade involves a mix of a bull put spread and a bear call spread. The primary objective? Benefiting from time decay while banking on HD stock maintaining its trajectory without major fluctuations.
Breaking Down the Iron Condor for HD:
For the bull put spread: Using the Aug. 18 expiration, traders could opt to sell the 315-strike put option while purchasing the 310 put. This spread, judging by recent trends, could be sold at approximately $0.50 per share across a series of contracts. Here, the 315 strike aligns closely with HD stock’s 50-day moving average.
On the flip side, for the bear call spread: One could sell the 350 call and proceed to purchase the 355 call. This specific spread has recently been valued at nearly $0.40 per share.
Summing it up, the entire iron condor approach could yield roughly $0.90 per contract or a premium of $90 for every options set. Profits are likely between 314.10 and 350.90, determined by adjusting the short strikes with the garnered premium.
Weighing the Risks and Benefits:
Given the 5-point width of both spreads, HD stock’s trade risk caps at $410 (calculated as (5 – 0.90) x 100). Consequently, weighing the premium ($90) against this risk offers a potential 21.95% return.
If HD stock remains steady, the iron condor strategy is set to thrive. However, unexpected swings could result in losses. Considering trades over earnings can be unpredictable, it’s essential to note that HD’s post-earnings movement has consistently stayed within predicted ranges.
HD’s Current Ranking:
IBD Stock Checkup positions HD stock second in its category, boasting an 80 Composite Rating, an 83 EPS Rating, and a 77 Relative Strength Rating.
A Word of Caution:
Trading in options carries risks, potentially leading to a total loss of the invested amount. It’s crucial to treat this article as informational and not a direct endorsement of any trading strategy. Always conduct thorough research and consult a financial advisor before making investment decisions.
Week Ahead Outlook:
Given HD’s steady past performance and its strong ratings, it seems to be a reliable stock. However, while the iron condor strategy offers promising returns, it’s essential to approach it cautiously due to its inherent risks. For those not familiar with high-risk options trading, it may be best to watch HD’s performance post-earnings before deciding on a long-term investment.
