On Monday we took a look at Home Depot (HD) stock after it had backed off a bit after its run into Hurricane Irma that had taken it to resistance. Following the storm the stock was down a few dollars and when we posted the stock was 158. Here was the trade idea, from Sept 11th:
HD ($158) Buy the Sept 15 (weekly)/ Oct 160 call calendar for $2,
- sell 1 Sept 15th weekly 160 call at .60 cents
- buy 1 Oct 160 call for 2.60.
With the stock now back near our 160 strike, trading 159.35, and only a day left until the short Sept call expires let’s check back in. The trade has worked well on the bounce, with the Sept calls, that were sold at .60 now worth just .20. And the Oct 160 calls, bought for 2.60, now worth 2.70. The initial trade cost 2.00 and is now worth 2.50.
As far as trade management it makes sense to close the Sept calls and roll them out to October, creating a cheap call spread for a potential breakout:
Buy to close the Sept 160 calls for .20 (for a .40 profit)
Sell to open the Oct 165 calls at .95
New Position: Long the HD (159.35) Oct 160/165 call spread for 1.25 (currently worth 1.75)
Breakeven on Oct expiration – Gains above 161.25 and losses below. Max gain of 3.75 at or above 165. Max loss of 1.25 below 160
Rationale – The trade update leaves a cheap call spread for a breakout. It is still a little bit out of the money but a move above 160 could come. It has a little bit of profit to work with and a stop below at breakeven on the trade probably makes sense.