Thursday, August 15, 2013

The Home Depot (HD) - Annual High in Volatility is Actually Low Vol? Brace for Bell-Weather's Earnings

HD is trading $75.26, down 2.8% with IV30™ up 13.0%. The LIVEVOL® Pro Summary is below.


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The Home Depot, Inc. (The Home Depot) is a home improvement retailer. The Company operates The Home Depot stores, which are full-service, warehouse-style stores. The Home Depot stores sell an assortment of building materials, home improvement and lawn and garden products and provide a number of services.

I found this stock using a real-time custom scan. This one hunts for elevated vols. Two things to note. First, HD is releasing earnings on 8-20-2013 (BMO) and second, the IV30™ as of this writing is at an annual high. But, I'm going to argue that the annual high in volatility is actually low...

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 25
IV30™ Percentile GTE 80
Average Option Volume GTE 1,200

The two-year HD Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

On the stock side we can see the impressive two-year return with the stock up from $33.12 or more than 120% higher in two-years.  But this is a vol note, and a remarkable one in my opinion.

Let's turn first to the one-year IV30™ chart in isolation, below.

So, on an annual basis we can see that the implied is in fact breaching a new high with the vol pop today.  But, that's not quite the full picture.  Let's look at the same chart but over two-years, below.

With this broader view we can see that HD has seen much higher levels of implied volatility over this two-year stuck run, with IV30™ reaching over 44%.

Now let's think about things for a sec...

HD is a bellwether, a $110B market cap representing the giant of giants in the D-I-Y and professional building world.  They matter and people will be watching the earnings they release as well as projections very closely.  How closely?  Well, CSCO and WMT just released earnings today, they were not good, the projections were not good, and the market is down size and VIX now trading at 14.48% (from 11.5% ish just a little while ago).

I say with the reaction to the news from those two bellwethers, the angst (read: risk) in HD's earnings has just grown. The option market agrees, as we do see a 13% pop in IV30™ today alone.  Is it possible that we just throw out the annual measures of volatility and look to a broader two-year scope?  If so, then HD's vol into earnings is low... How do you like that?... An annual high that's low...

Finally, let's look to the Options Tab (below).

Though not pictured above, the Aug23(W) options are priced to 36.72%.  I dunno.. that also feels like it could be low.  Whatever the case, somehow the 26.16% vol in Sep sure doesn't feel high... Right?... or No?...

This is trade analysis, not a recommendation.

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