HD Bullish Calendar Call Spread with 324% Upside


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This HD Calendar Call Spread Could Turn 324% Profit

Bullish play with a target stock price of $375

Strategy has +324% upside potential and 23% undervalued


Strategy: HD Calendar Call Spread
Sell 16-Aug-24 375 Call3.95
Buy 20-Sep-24 375 Call6.30
Debit:$2.35


Home Depot has increased by +2.6% today to $353.17. The share price is currently in a uptrend, based on HD moving averages. Setting up this calendar spread with strikes at $375 gives you a bullish bias to tap into HD stock's strength.

Option Profit Calculator Results for HD Calendar Spread at 16-Aug-24 Expiration

In this scenario, the optimal stock price for the option strategy would be $375.00 on the date of the first expiration, August 16, 2024. This is equal to the strike price of the options in the spread. Since HD is in a technical uptrend currently, and the strikes are above the current stock price of $353.19, the spread is taking advantage of the stock's upward momentum. If the stock price is $375.00 at expiration, we can benefit from the 16-Aug-24 call, which we sold, expiring worthless, and the option that we are long, the 20-Sep-24 call, will still have time premium built in.

Since we do now know what the exact implied volatility will be on August 16, we can use our historical data to make an educated estimate to help us calculate the value of the 20-Sep-24 option. Applying the median historical implied volatility of 21.4 from similar options, the theoretical value of the call is 9.96 at the date of the 16-Aug-24 expiration. Using the above assumptions gives us a potential upside of +324% for this calendar spread.

HD Calendar Spread Value vs. Market Price

According to Market Chameleon estimated value, HD Calendar Spread is trading at a 23% discount to historical benchmark.

If we use historical data to measure how similar spreads in HD were priced in the market, the 4-year average price was 3.06, with a high mark of 4.33 and a low of 1.95.

Currently, the calendar call spread is bid at 1.95 and offered at 2.35. The midpoint of the spread is 2.15.

If we use 3.06 as our historical fair value benchmark, the current market ask price is at a 23% discount, while the current market midpoint represents a 30% discount.

Current PriceHistorical Values of Similar Spreads
BidAskMidpointAverageHighLow
1.952.352.153.064.331.95
Market Chameleon captures daily records of market data to calculate historical benchmarks and generate estimated values.

Takeaway

The HD calendar call spread we've identified here can be a good way to play a bullish outlook because the option strategy has a +324% upside potential, is 23% underpriced relative to historical measures, and will benefit if the stock continues to trend higher to $375.

See how Market Chameleon can help you make smarter and more efficient trades!



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Marketchameleon is a comprehensive financial research and analysis website specializing in stock and options markets. We leverage extensive data, models, and analytics to provide valuable insights into these markets. Our primary goal is to assist traders in identifying potential market developments and assessing potential risks and rewards.



NOTE: Stock and option trading involves risk that may not be suitable for all investors. Examples contained within this report are simulated And may have limitations. Average returns and occurrences are calculated from snapshots of market mid-point prices And were Not actually executed, so they do not reflect actual trades, fees, or execution costs. This report is for informational purposes only, and is not intended to be a recommendation to buy or sell any security. Neither Market Chameleon nor any other party makes warranties regarding results from its usage. Past performance does not guarantee future results. Please consult a financial advisor before executing any trades. You can read more about option risks and characteristics at theocc.com.


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