Home improvement stocks like Home Depot Inc (NYSE:HD) are set for a stellar quarter. At least, if my family’s recent budget has anything to say about it. The Hargett family moved into a now home late last year, and we’re finally shaking off the winter prettying up the house.

We’re far from alone.  New home sales have been on the rise since last year, and March sales rose to their highest level in roughly 11 years. February’s reading was even revised higher. For home improvement stocks, this is a bullish sign. After fixing up the interior during the long winter months, consumers are now moving out into the yard. For many, that means lawn mowers, weed trimmers, fertilizer, mulch, flowers, etc.

Home Depot is expected to see big gains from the influx of new housing. Analysts are projecting earnings to rise more than 23% year-over-year to $2.06 per share. Revenue is expected to rise 5.5% to $25.21 billion.

But real expectations may be considerably higher for Home Depot’s quarterly report tomorrow morning. EarningsWhispers.com indicates that the whisper number rests at $2.11 per share — a reflection of rising expectations from a strong housing market. This also means expectations for solid guidance, which Home Depot should have no trouble matching.

Click to Enlarge Home Depot shares are beginning to reflect these bullish expectations. HD stock is up nearly 11.7% since hitting a low near $170 in April. After a period of consolidation, the shares rallied off support from their 200-day moving average and blew past former resistance at their 50-day.

The only area standing in HD stock’s way now is the psychologically important $200 level. And HD options traders are predicting a showdown with $200 by next month’s expiration.

Currently, June implieds are pricing in a post-earnings move of about 5.2% for HD stock. This places the upper bound right at $200. The lower bound lies at $180. Barring a disasterous quarterly earnings report, or a retreat in the broader market, HD stock should have no trouble at least hitting $200 before June expiration.

HD stock options traders are apparently thinking the same thing. The June put/call open interest ratio currently rests at a bullish reading of 0.67. This ratio has also trended steadily lower for the past month, as bulls lift their hopes for a strong post-earnings rally.

Home Depot could also get some help from the brokerage community. Currently, Thomson/First Call reports that eight of the 33 analysts following HD stock rate the shares a “hold” or worse. The 12-month price target also rests at $211.24. Target-price upgrades seem more likely at this point, but an upgrade or two would not be out of the question following strong results.

2 Trades for HD Stock

Call Spread: Those traders looking to bet on a continued run higher following tomorrow’s earnings report might want to consider a June $195/$200 bull call spread. At last check, this spread was offered at $1.30, or $130 per pair of contracts. Breakeven lies at $196.30, while a maximum profit of $3.70, or $370 per pair of contracts — a potential 184% return — is possible if HD stock closes at or above $200 when June options expire.

Put Sell: While the housing market is showing strong signs of growth, there is always the potential for a sell-on-the-news dive in HD stock. Those looking to take a more cautious approach might want to consider a June $170 put sell.

At last check, the option was bid at 57 cents, or $57 per contract. As usual, you keep the premium as long as HD stock closes above $170 when these options expire. The downside is that should Home Depot stock trade below $170 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $170 per share.

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