Let’s take a different turn on the typical earnings trade, in which we recommend an option trading play on a company that is due to report within a few days. Instead, we’re going to look at a post-earnings trade that looks attractive amid the market’s recent weakness.

Home Depot (NYSE: HD) reported earnings before the open on Tuesday, and the numbers were solid all around. Earnings beat by five cents — 36 cents vs. 31 cents — and revenue beat as well. The company also threw in higher guidance on earnings and raised its quarterly dividend. What’s not to like?

Unfortunately for the stock, the report was ill-timed, as the market has been rocked this week by the turmoil in the Middle East and surging oil prices. The result was that the shares fell by more than 6% from Tuesday’s post-earnings high to Wednesday’s intraday low. The good news is that the stock is finding support at its 20-day moving average, a trend line that has been solid throughout the past couple of weeks.

Home Depot Stock

Along with this support, we’re seeing some unwinding pessimism that should add buying pressure. The put/call ratio is coming off a peak, suggesting that calls are taking over from puts. And the stock is seeing more analysts migrate to the “buy” camp, although there are still 11 of 26 who have yet to upgrade the shares. So there’s plenty of skepticism yet to unwind.

Once the market works through the geopolitical upheaval that has dominated the week, HD’s fundamentals and technicals should shine through. Actually, the pullback offers an excellent entry point for a call trade.  We suggest allowing plenty of time for the expected uptrend to reassert itself. Buy the HD April 37 Call for around $1.60 or so.

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