Is the Home Improvement Collateral Damage Overdone?

Lowe’s LOW – NYSE

Friday, July 07, 2017

For most of the year, home improvement chains Lowe’s LOW – NYSE and Home Depot HD – NYSE have been impervious to retail weakness. This all changed, however, when Amazon.com AMZN – NASDAQ announced its entry into brick and mortar stores with the acquisition of Whole Foods Market WFM – NASDAQ.

Since then, LOW is down 3.8% and threatening to break below its 200-day moving average. And a trader previously on record for being bullish LOW just doubled down by rolling all of his 8,500 LOW August 82.5 calls into August 80 calls.

LOW

“Rolling” simply means this trader sold to close the 82.5 calls he was holding and re-opened his exposure on the 80 line. In order to perform this maneuver, he outlaid $0.51 per spread for a total expenditure of $434,000 (in addition to the cost of the original trade).

Is the weakness in LOW overdone? If so, watch for LOW to move back toward $81.50 and turn this trade into a winner.

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