Home Depot Stock: How To Make A Butterfly Take Flight

Home Depot (HD) is currently the most sold stock in the Dow Jones Industrial Average when looking at the RSI indicator. Traders may consider taking some upside exposure on Home Depot, using options in a risk-limited manner.
One way to do this is to use a bullish butterfly spread. Butterfly spreads involve three different options strikes, all on the same expiration date, and can be created using either calls or options.
By trading a butterfly with an upward bias, we can place the trade at a cheap price and get a large potential return.
Assuming we have a price target of 410 for Home Depot stock over the next few weeks. Let’s take a look at how to set up a bullish butterfly based on those parameters.
How does a butterfly take its wings?
First, you buy one call on the November 21 400 at $10.10 per share. Then sell two November 21 410 calls at $6.40. Then buy one call dated November 21, 420 at $3.80
This trade only costs about $110 per spread, but has the potential for a much higher return than that. The ideal scenario is for Home Depot’s stock price to be around 410 at expiration on November 21.
The maximum loss on a trade equals the premium paid of approximately $110 per 100-share contract. This may occur anywhere below 400 or above 420 for the stock.
The maximum potential profit from the trade is $890. This is calculated by taking the butterfly bid, which is 10 times 100 less than the premium paid of $110. At expiration, the breakeven zones are at 401.10 and 418.9. Profits increase between those prices until they reach the maximum profit at 410.
Taking a low-risk trade like this could be one way to get exposure to a bounce in Home Depot stock while also risking a little capital.
Home Depot Stock: Earnings Due in November
Home Depot is scheduled to report earnings in mid-November, so this trade will have earnings risk if held to expiration.
Investor’s Business Daily presents Home Depot stock A Composite evaluation Of 52 of the best 99 possible, and Earnings per share rating From 52 and a Relative strength rating Of 42. According to IBD inventory checkHome Depot also ranks second in the retail/wholesale product group. Furthermore, the group ranks 145th out of 197 industry groups covered by IBD.
This trade is long straddle on Advanced micro devices (AMD) from last week was the biggest gainer and could be closed early.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for educational purposes only and is not a commercial recommendation. Remember to always do your due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster holds a Master’s degree in Applied finance and Investment. He specializes in income trading using options, and is conservative in his style. He also believes that patience in waiting for the best settings is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ.
You may also like:
Bullish Celestica stock is a good candidate for bullish options traders
Vertiv Stock Hits New High These trades carry a stock discount and profit potential.
Trade options to get SoFi stock at a discount
Meta Platforms Stocks Today: This Options Trading Butterfly Could Earn $2,290
2025-10-07 14:38:00