Options Traders Can Score a Post-Harvey Deal on Lowe's Stock – Schaeffers Research (blog)

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Home improvement retailers are in focus, following the devastation left behind by Tropical Storm Harvey. As Home Depot stock trades near a key technical level, Lowe’s Companies, Inc. (NYSE:LOW) is clinging to a week-to-date lead. Below, we will look at LOW stock, and see how options traders have been placing their bets.

At last check, the stock was down 0.4% to trade at $73.52 — but remains 0.2% higher on the week. Nevertheless, the recent trend has been lower, with LOW off 15% from its May 9 record high of $86.25. This downside was exacerbated last week, following a negative earnings reaction for Lowe’s stock. 

Looking at the options pits, LOW’s Schaeffer’s put/call open interest ratio (SOIR) of 0.28 ranks in just the 13th percentile of its annual range. This suggests short-term option players have rarely been more call-heavy during the past 12 months. Drilling down, peak open interest of 29,279 contracts is found at the September 77.50 call. In fact, not a single put ranks in LOW’s top 10 open interest positions.   

Data from the major options exchanges shows a mix of buy- and sell-to-open activity at the September 77.50 call in recent months. Those initiating long calls expect LOW to close north of the strike at the close on Friday, Sept. 15 — when the options expire — while those writing the calls bet on $77.50 serving as a ceiling for the shares.

However, put buying has ramped up in the last 10 days. This is evidenced by LOW’s 10-day put/call volume ratio of 0.81 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) — in the 85th percentile of its annual range. In other words, puts have been bought to open relative to calls at a faster-than-usual clip.

Regardless of the direction speculators expect Lowe’s stock to move, the good news for options traders is that it’s a prime time to buy premium. LOW’s sports a Schaeffer’s Volatility Scorecard (SVS) of 75, which indicates the home improvement shares have exceeded options traders’ volatility expectations during the past year.

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