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The Home Depot, Inc. (HD) Short Sellers Got Knocked Out by Earnings, Guidance Combo

The Home Depot, Inc. (NYSE:HD) proved a rather unwelcoming home for short sellers this year, who predicted the stock would take a dive on continued weakness in the retail and housing sectors. On CNBC on Friday, some of the Options Action traders, including Michael Khouw, Managing Director and Chief Strategist at DASH Financial, discussed their plight involving their attempts to short the stock, and the involvement of put options in the transaction.

The Home Depot, Inc. (NYSE:HD)

“I mean the jab was the beat on earnings and the guide higher was the hook that knocked us out. I mean that’s not really what you want to see, that’s not consistent with the bearish thesis that we had. There isn’t a whole lot of premium so the whole idea here is we’ll take a look and see how these things trade next week and possibly if the market pulls back and there’s a little premium, I’d actually just sell them and take what’s left and move on,” Khouw said.

The Home Depot, Inc. (NYSE:HD) began trending upwards again from the middle of May onward, and soared in the middle of August on the strength of several sets of positive news. Among them was the data that home building confidence was at a seven month high, as well as The Home Depot, Inc. (NYSE:HD)’s own positive results, which included earnings that beat estimates and jumped 5.7% from the year prior, allowing them to raise their full-year guidance in the process. Despite the The Home Depot, Inc. (NYSE:HD)’s recent scandal over a data breach that may end up being one of the biggest in retail history, their stock is still up 6.67% for the month, and 14.35% for the prior three months.

According to the CNBC analysis, their short of 100 shares of The Home Depot, Inc. (NYSE:HD) amounted to a $1,200 setback given the stock’s rise in value over the past few months, while a put option on the stock from May 16 which was exercised limited the damages to $340.

Disclosure: none

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