Home Depot wowed Wall Street on Tuesday, and now at least one trader stands to make a lot of money after betting on the stock's direction.
The home improvement mega-retailer beat analysts' expectations on its revenues, profits and same-store sales. It also upped its full-year earnings guidance. Home Depot's stock soared during Tuesday's pre-market trading, trading more than $2 above its previous closing price of $114.33.
The options market was particularly bullish on the stock on Monday. Bullish bets on Home Depot outnumbered bearish ones by a ratio of 4-to-1. And one trade now seems quite prescient.
Specifically, 6,500 contracts of the weekly May 116-strike calls were traded for a price of about 85 cents each. Since each contract controls 100 shares, more than $550,000 was wagered that Home Depot shares would close above $116.85, or 2 percent higher than Monday's close. A call is a bullish bet allowing purchasers to buy a stock at a set price within a specific time frame.
According to options expert Mike Khouw, the choice of the 116-strike calls may not have been just a coincidence. "This stock has typically moved about 2.8 percent on earnings," he explained. "That's how much the stock would need to go higher for these calls to be profitable."