Thursday, August 13, 2015

HD Analysis

Update 8/22/2015: My HD position expired Saturday. Shares fell 2.9% over seven days, or a -149% annual rate. The options produced a 100.0% yield on debit for a +5,214% annual rate.

Update 8/14/2015: I've opened a position in HD as described below, but with a slightly lower premium. Here are the numbers for the actual trade:

The premium is $0.37, which is 19% of the width of the position’s wings.The stock at the time of analysis was priced at $119.59.

The risk/reward ratio is 4.6:1.

The home improvement retail chain Home Depot Inc. (HD), headquartered in Cobb County, Georgia, publishes earnings on Tuesday before the opening bell.

[HD in Wikipedia]


I shall use the AUG series of options, which trades for the last time seven days hence, on Aug. 21.


Click on chart to enlarge.
HD after Aug. 13 close, 30 days hourly bars
Implied volatility stands at 23.0%, which is 1.7 times the VIX, a measure of volatility of the S&P 500 index. HD’s volatility stands in the 100th percentile of its most recent rise.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%ChartEarns
Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move

The Trade

Iron condor, short the $124 calls and long the $126 calls,
short the $114 puts and long the $112 puts,
sold for a credit and expiring Aug. 22.
Probability of expiring out-of-the-money


The premium is $0.42, which is 21% of the width of the position’s wings.The stock at the time of analysis was priced at $119.02.

The risk/reward ratio is 3.8:1.

The zone of profit in the proposed trade covers a $6 move either way. The biggest immediate move after each of the past four earnings announcements was $4.64, and the average was $3.29.

Decision for My Account

I shall attempt to open a position on Friday, as described above.

-- Tim Bovee, Fukuoka, Japan, Aug. 14, 2015


My volatility trading rules can be read here.


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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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