The best blue-chip stocks for options buyers this month
Home Depot’s struggling stock has seasonality on its side
It’s been a tough few months for a top home improvement retailer Home Depot Inc. (NYSE:HD). Shortly after the company suffered a post-earnings liquidation in February, compounded by a beat and raise from main competitor Lowe’s – the security hit an eight-month low just above the $299 level. While Home Depot stock managed to distance itself from this rout, the 40-day move quickly sent the stock to even lower levels late last week. Hope may not be completely lost, however, as equity has seasonality on its side, which could help guide HD to a win in April.
To be more specific, Home Depot stock just landed on Schaeffer’s senior quantitative analyst Rocky White’s list of the best-performing S&P 500 stocks in April, dating back 10 years. According to this data, Home Deport stock has posted positive one-month returns 90% of the time, with an average jump of 4.3% over this period. From HD’s current perch of $303.17, a similar move would pull the stock back to the top of the $316 level. And while those gains seem relatively small compared to some others on the list, equity is the only blue-chip stock and member of the retail industry that made the cut.
An unraveling of the pessimism in the option wells could put additional wind at the back of equities. On the International Securities Exchange (ISE), Cboe Options Exchange (CBOE) and NASDAQ OMX PHLX (PHLX), HD has a 50-day put/call ratio of 1.25, which exceeds 91% of all annual readings. In other words, long puts are recovered at a faster rate than usual.
Now may be the perfect time to speculate on HD’s next move with options as well. The stock’s Schaeffer Volatility Index (SVI) of 48% is in the lower quartile of its 12-month range. In other words, options traders are currently pricing relatively low volatility expectations. Additionally, the stock boasts a Schaeffer Volatility Scoreboard (SVI) of 91 (out of a possible 100), implying that HD tends to outperform said volatility expectations.