Home Depot has been in a steep downturn since mid-September. How to use options to bet on a bounce
Home Depot (HD) has been in a steady slide, down about 12% over the last 18 days. While the downtrend is still intact, price is reaching a level where a mean-reversion bounce could set up. If support holds and momentum turns, this week might offer a defined-risk shot at a potential trend reversal. Support/Resistance Note the white line on the chart — it marks a long-term support zone near $380. Over the past six months, price has reacted there several times on both bounces and pullbacks. We’re back at that level now, and after tagging support, HD is starting to show some signs of life. MACD (Moving Average Convergence Divergence) The MACD is a reliable reversal gauge. While the standard (12, 26, 9) settings are popular, they can lag, so I often switch to (5, 13, 5) for a quicker read. On HD, the MACD line (blue) hasn’t crossed above the signal(yellow) line yet. So, it is important to wait for this confirmation first. RSI (Relative Strength Index) RSI is a handy momentum gauge—it flags overbought/oversold extremes and helps spot reversals. When RSI dips below 30, a stock is considered oversold. The confirmation comes when RSI climbs back above 30. With HD, we’re in wait-and-see mode until that happens. Like trades like these? My trading algorithm brings rules and discipline to options traders and is beating the benchmarks—see it in action here . The Trade Setup : HD 380-385 Bull Call Spread To play HD to the upside, I’m using a bull call spread — defined risk, defined payoff. By the time RSI and MACD confirm, I expect price to be a bit higher, likely in the 380–390 range. A vertical spread is simple: buy a call and sell a call in the same expiry as one unit, with strikes wrapped around where price is trading. For example, if HD is at 383, a 380–385 bull call spread works. If HD finishes at or above the short strike (385 in this example) by expiration, the spread pays its full $5.00 value—turning roughly a $2.50 debit into a 100% return. With 10 contracts, that’s $2,500 at risk for a potential $2,500 gain. Here is my exact trade setup: Buy $380 call, Nov 7 th expiry Sell $385 call, Nov 7 th expiry Cost: $250 Potential Profit: $250 -Nishant Pant Founder: https://tradewithmaya.com Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
<
