DailyPlay – Opening Trade (HD) – June 4, 2024

HD Bearish Opening Trade Signal

Investment Rationale

America’s largest Home Improvement store, HD has benefited from a long period of investor interest and traded at a premium valuation for years. However, the recent environment of slowing consumer spending and higher interest rates has finally caught up with it and risks are to the downside below $300. 

Technical Analysis

After a rally towards its all-time highs just shy of $400, HD has pulled back below its key $350 support level and now tests its $325 support and a risk of breaking lower. As the relative performance of HD reached a new 52-week low recently, it suggests that there are still further downside risks with targets the next support lower just below $300. 

HD – Daily

Fundamental Analysis

Trading at 21x forward earnings, HD is still trading at a premium given the fact that analysts are only expecting EPS and Revenue to grow at low single-digit levels and net margins sit below 10%. The reality is that with margins that are relatively thin and consumer spending further slowing down, HD cannot command the same type of premium valuation relative to the market. 

Trade Details

Strategy Details

Strategy: Long Put Vertical Spread

Direction: Bearish Debit Spread

Details: Buy to Open 3 Contracts Aug 16th $325/$300 Put Vertical Spreads @ $6.51 Debit per Contract.

Total Risk: This trade has a max risk of $1,953 (3 Contracts x $651) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $651 to select the # contracts for your portfolio.

Trend Continuation Signal: This is a bearish trade on a stock that recently turned bearish.

1M/6M Trends: Bearish/Bearish

Relative Strength: 4/10

OptionsPlay Score: 140

Stop Loss: @ $3.25 Credit. (50% loss of premium paid)

View HD Trade

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Monday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

View HD Trade