Big Printin’ – Lowe’s (LOW) Calls

by Dan February 15, 2017 2:57 pm • Big Printin'

Shortly before noon there was a large print in Lowe’s (LOW) calls that I thought was worth discussing for a handful of reasons. First, the stock is up nearly 2% today, trading at 5 month highs, approaching technical resistance from its late August earnings gap:

LOW 1yr chart from Bloomberg

The next identifiable catalyst for LOW will be their fQ4 results due March 1st and the trade that I am going to discuss might be playing for a gap-fill to the low $80s post earnings. When the stock was $77 a trader bought to open 12,000 April 80 calls for $1.22, but traded them on a 15 delta, meaning they sold 180,000 shares of stock at $77 vs the long call position. Given the low delta of the call, the trade might have been done delta neutral so the trader could secure tighter pricing from the market maker and merely looked to trade out of the stock once the trade was executed. Either way, for a purchase like that tied to stock at such a low delta it is more times than not directional.

Why might a trader be looking to make a directional bet via options in LOW? The stock has had two consecutive gaps lower following earnings, so with options prices generally pretty cheap it might make sense to play a laggard like LOW’s with defined risk. And secondly, yeah maybe the laggard plays a little catch up to its peer The Home Depot (HD) which this week is breaking out to a new all time high:

HD 1yr chart from Bloomberg

We will be sure to check back in on the home improvement retailers after we get a little more info from HD’s earnings call on Feb 21st and prior to LOW’s the following week.