Home Depot, Disney Options Traders React to Harvey, Irma – Schaeffers Research (blog)

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Home improvement retailer Home Depot Inc (NYSE:HD) and Disney World parent Walt Disney Co (NYSE:DIS) have made headlines recently, as traders kept a close eye on Hurricanes Harvey and Irma. While HD stock capitalized on expectations of a massive cleanup effort, DIS shares tumbled on concerns of damage to the Florida theme park. Options traders have been quick to place bets on the two Dow stocks, too, with both names seeing notable activity in recent weeks.

The 20 stocks listed in the table below have attracted the highest weekly options volume during the past 10 trading days. Stocks highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer’s Senior Quantitative Analyst Rocky White.

most active stock options sept 11

Home Depot Options Traders Have Been Buying Calls

Since bouncing in the $147 region in late August, Home Depot shares are up more than 6%. Last week, the stock went on a five-session winning streak — and came within a chip-shot of taking out its May 16 record high of $160.86 — which is set to be snapped today with HD down 1.3% at $157.53. Longer term, the Dow name is 21.6% higher year-over-year.

Options traders have been betting on more upside at a quicker-than-usual clip, too. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock’s 10-day call/put volume ratio of 2.81 ranks in the 86th annual percentile. 

The October 160 call saw the largest increase in open interest over this time frame, with 10,140 contracts added. Data from Trade-Alert suggests some of the action was of the buy-to-open kind, meaning speculators expect HD stock to be back above $160 by expiration at the close on Friday, Oct. 20.

Walt Disney Stock at Risk for Downgrades

Disney shares were up 1% earlier , but ran out of steam near the $98 mark — home to their 200-week moving average. Last week, the stock closed south of this trendline for the first time since 2011. More recently, DIS stock was 0.2% higher to trade at $97.23, but remains 13% off of its Aug. 1 highs near $111.

The stock’s recent downtrend has attracted a fresh batch of options bears. At the ISE, CBOE, and PHLX, for instance, 37,567 puts have been bought to open in the last two weeks, compared to 30,054 calls. The resultant put/call volume ratio of 1.25 ranks just 14 percentage points from a 52-week peak. Drilling down, nearly 12,700 new positions were initiated at the October 92.50 put in the last 10 sessions — the biggest rise in open interest over this stretch — though it looks like some of the action is tied to stock.

Not everyone on Wall Street is skeptical of Disney stock, though. Of the 20 brokerages covering the shares, 12 maintain a “buy” or better rating, while the average 12-month price target of $111.79 stands at a nearly 15% premium to current levels. Should DIS shares resume their path lower, a round of downgrades and/or price-target cuts could increase selling pressure.

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