Trade Alert - (HD) August 23, 2017
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.
Trade Alert - (HD) - BUY
BUY the Home Depot (HD) September, 2017 $141-$144 in-the-money vertical BULL CALL spread at $2.60 or best
Opening Trade
8-23-2017
expiration date:September 15, 2017
Portfolio weighting: 10%
Number of Contracts = 38 contracts
This is a bet that Home Depot shares will NOT fall below $144.00 by theSeptember 15 option expiration in 16 trading days, compared to the current $147.81.
Don'?t pay more than $2.70 for this position or you'll be chasing.
I am using the sell off in the shares this morning to pick up this position, which is occurring, not because of anything Home Depot did, but because of a weak Q2 earnings report by competitor Lowes (LOW).
Lowes is an inferior operation, their shares plunged 6% this morning, and their coffee totally sucks.
If you don't do options, buy Home Depot shares outright. Longer term, I think Home Depot will continue to appreciate, as the housing and remodel boom still has years to run, and possibly decades.
If you want to make a safer play, buy the IShares US Home Construction ETF (ITB) on this dip, which gives you broader exposure to the real estate recovery.
Baskets of shares always have lower volatility than single stocks, but lower returns as well.
We just have to give the market a chance to have a few more heart attacks before the current correction ends.
Home Depot is in a tiny retail niche that has so far avoided the Amazon (AMZN) onslaught.
When you need a particular screw, lighting fixture, or plumbing part, calling Amazon will get you absolutely nowhere.
You need (HD)'s sympathetic, knowledgeable customer service people, usually retired contractors themselves, to point you in the right direction and assist with a few helpful suggestions.
They've done this for me a million times.
Home remodel and repair is also an industry where a premium is paid for making parts available NOW! A burst pipe won't wait for an Amazon priority delivery, nor will a leaky roof or broken sprinkler head.
A lot of independent contractors are not even able to plan supplies weeks or months in advance. They buy what they see.
The home repair and remodel boom will continue, as it is the working man's solution to high home prices, especially on the coasts, as the profusion of home repair cable TV shows testifies.
While Home Depot beat on its own Q2 earnings report, it announced on a day when other retailers were announcing outright disasters.
This gives us a great discount entry point for a super long-term company, which doesn't care what the US dollar is doing.
Note that I have been clever here by picking an upper $144 strike that is just below the 200-day moving average, which should provide rock solid support the first time around.
If we break that, I will stop out of this position so fast it will make your head spin, given these uncertain times.
Remember, this is just a 16 trading day view.
To see how to enter this trade in your online platform, please look at the order ticket below, which I pulled off of Interactive Brokers.
If you are uncertain on how to execute an options spread, please watch my training video on How to Execute a Vertical Bull Call Spread by clicking here at
http://members.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. If it doesn't get done, then bump up your bid for the spread by a few cents.
The difference between the bid and the offer on these deep in-the-money spread trades can be enormous. You are trying to buy your own yacht with this trade, not your broker's.
Don't execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.
Here are the specific trades you need to execute this position:
Buy 38 September, 2017 (HD) $141 calls at..............$7.00
Sell short 38 September, 2017 (HD) $144 calls at...........$4.40
Net Cost:.............................................
Potential Profit: $3.00 - $2.60 = $0.40
(38 X 100 X $0.40) = $1,520 or 15.38% in 16 trading days.
