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One of the trades we’re recommending right now in our Turbo Trader Live service is a long put spread, also known as a bear put spread, in Home Depot Inc (NYSE:HD).
In this bearish strategy, we buy to open an in-the-money or at-the-money put option and sell to open an out-of-the-money put option. In other words, we sell a cheaper put with a lower strike price against the long put, which will have a higher strike price. The premium we collect from the short put lowers our cost basis for the trade.
Looking at the chart of HD, we can see that the stock faded following the gap higher that was made after earnings.
One of the reasons it’s fallen this week was the rather disappointing new-home-sales data that showed a pretty dramatic decline. Lowe’s Companies, Inc. (NYSE:LOW) is also weighing on Home Depot, as it declined Wednesday following a worse-than-expected earnings report. We’re expecting these factors to keep pushing HD lower over the near term.
Buy to open the HD July 21st $155 Puts and sell to open the HD July 21st $150 Puts for a net debit of about $2.20.
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