Premium Earnings 2-17-12 Home Depot and Macy’s

• Posted by Greg Harmon
• on February 17th, 2012

Don’t leave for the weekend yet, two retail giants report Tuesday before the open, Home Depot, $HD, and Macy’s, $M.

Home Depot, $HD

Home Depot, $HD, has been in a rising wedge since September, briefly breaking above it in January. At its all time high it has no upside resistance. The Relative Strength Index (RSI) is bullish and holding higher while the Moving Average Convergence Divergence (MACD) indicator looks to be crossing positive after trending higher.These support more upside. There is support below at 45.40 and 44.35 followed by 43.60, 43 and 42. The reaction to the last 6 earnings reports has been a move of about 1.7% on average or only 76 cents making for a range of 45.75 to 47.26. The at-the money weekly Straddle implies a much larger range and anticipates a $1.35 move by next Friday. Implied volatility at 25% is high compared to the historical at 15%, and March options at 21%, but hey all are low. Lots of activity today in the upside 48 calls and the 44 puts.

Trade Idea 1: Buy the February 48 Calls for 20 cents.

Trade Idea 2: Buy the February 47/48 Call Spread for 28 cents.

Trade Idea 3: Buy the March 47/48 Call Spread for 35 cents.

Trade Idea 4: Buy the February 48/44 Bull Risk Reversal for 11 cents.

Trade Idea 5: Buy the March 48/44 Bull Risk Reversal for 3 cent credit.

Trade Idea 6: Buy the March 47/48 Call Spread Risk Reversal selling the 44 Put for 10 cent credit.

Macy’s, $M

Macy’s, $M, has been stair stepping higher since finding a bottom in mid August. It is approaching resistance at 36.40 rising out of a bull flag with a Measured Move to 38.10. Support can be found lower at 34.40 and 33.10 followed by 31.80 and 30.45. The RSI is bullish and turned higher again while the MACD is negative but improving toward the zero line. This chart is also biased higher. The reaction to the last 6 earnings reports has been a move of about 4.25% on average or $1.50 making for a range of 34.50 to 37.50 and the at-the money March Straddles suggest a larger $2.80 move by March Expiry. Implied volatility at 34% is elevated compared to the historical at 26% but in line with the longer May options. The activity today has been focused in the March 36 Calls with 10 times the volume of any other strike or contract.

Trade Idea 1: Buy the March 36 Calls $1.38.

Trade Idea 2: Buy the March 36/37 Call Spread for 50 cents.

Trade Idea 3: Sell the March 33 Puts for 50 cents.

Trade Idea 4: Buy the March 36/37 Call Spread Risk Reversal selling the 33 Puts for free

Trade Idea 5 Buy the March 36/38 Call Spread for 84 cents.

Trade Idea 6 Buy the March 36/38 Call Spread Risk Reversal selling the 33 Puts for 34 cents

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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