A large trade is looking for Home Depot to rally by the beginning of summer.
Investitute’s tracking systems today detected the purchase of 15,250 June $155 calls for $1.41 and the sale of 15,250 June $160 calls for $0.46. This is clearly new positioning, as volume was far above the strike’s open interest at the start of the session.
This vertical spread cost a net $0.95 to open and is looking for HD to rise above $155 by expiration in mid-June. The sale of the higher-strike contracts reduces the cost of the long calls but limits potential gains, as the trader will be obligated to sell shares if they rise above $160.
The June 155 calls–which Investitute co-founder Jon “DRJ” Najarian highlighted this afternoon on CNBC’s “Halftime Report”–traded for 1.76 by the end of the session, already up 25 percent since we reported the initial activity only hours earlier.
Long calls lock in the price where the stock can be purchased, gaining with a rally and providing leverage to the underlying shares. But the contracts can quickly lose value if the stock stalls or pulls back.
HD finished today up 0.86 to $150, an all-time closing high, as it continues to advance with bullishness in the housing industry. The home-improvement retailer is scheduled to announce quarterly results on May 16 before the market opens.
Disclosure: Najarian owns HD calls.