Ride Home Depot Even Higher!

by John Kmiecik | March 11, 2013 6:15 am

When looking at trade ideas from various sources (including InvestorPlace) traders should know these are only suggestions — it is up to traders to decide for themselves whether the trade fits their style and makes sense for them. Still, it is always nice to have a plethora of trade ideas to sort through.

Here is a trade idea on a company whose motto is similar to that thinking — “You can do it. We can help!”

Home Depot: Long Calls

The trade: Buy the Home Depot (NYSE:HD[1]) April 70 calls for $2.10 or less.

The strategy: The long call is an option strategy with defined risk that is generally used for a bullish outlook on a stock. The trade can profit if the stock rises and the call premium increases to an amount more than was paid. Maximum profit is unlimited because HD can continue to rise, and the maximum loss is $2.10 or whatever was paid if HD finishes below $70 at April expiration. Breakeven is $72.10 at expiration based on a cost of $2.10.

The rationale: Home Depot is the world’s largest home improvement chain. The company posted strong fourth-quarter numbers, with earnings growing about 36% year-over-year, and same-store sales increased 7% YOY. The company also approved a $17 billion stock repurchase that is generally considered bullish for the stock. Also, the housing industry finally looks like it is starting to make a recovery after being depressed for many years which can only help the retailer.

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The stock has been on a tear higher, starting its ascent after the close on Feb. 25. The stock has traveled all the way up and just recently surpassed its all-time high, where the stock took a breather. Instead of pulling way back, the stock was able to basically trend sideways holding a bullish base.

Then on Friday, HD was able to break out to the upside, finishing at its highest close ever.

That being said, with no resistance overhead, who knows how high HD can climb! Traders will find out soon!

As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities.

  1. HD: http://studio-5.financialcontent.com/investplace/quote?Symbol=HD

Source URL: https://investorplace.com/2013/03/ride-home-depot-even-higher/
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