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November 1, 2013  Fri 11:12 AM CT

HD: SEE CHART GET CHAIN FIND STRATEGIES
A large trader is looking for Home Depot to stay range-bound for the next two weeks.

More than 17,000 HD options have traded, topping its daily average for the last month. Most of that action is in the November 76 puts, where a block of 11,000 traded for $0.30.

At essentially the same time, a block of 220,000 HD shares was sold for $77.03. Taken together, the stock and option trades create a delta-neutral position that is short volatility. The trader is therefore looking for HD to remain range-bound and/or for the actual volatility to be less than that implied by those puts through expiration in mid-November. (See our Education section)

HD is down 0.87 percent to $77.21. The home-improvement giant has faced resistance at $78 going back to mid-August. There has been support at $74 since Sept. 10.

The company is scheduled to hold its annual conference for investors and analysts on Dec. 11.
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Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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