Option Traders Very Active In Home Depot After Earnings Beat

What Happened: Home Depot Inc HD posted earnings before the market open, beating both on EPS ($3.92 versus $3.42 estimate) and revenue (+5.35% increase). The stock closed up 5.7% trading with more than six million shares traded, which is well above its 10-day average of 2.9 million shares.

But what is really impressive is how option traders have posted over 167,000 options on the day (see below).

Why It Matters: Prior to Tuesday, Home Depot only had about 151,000 calls and 189,000 puts for a total of roughly 340,000 options. Hence, Tuesday's 167,000+ options traded represents a 49% increase in the total options over one day.

Of those 167,000 options traded, approximately 108,000 of them are calls and 59,000 puts, which means about two out of every three options are calls.

Before the earnings release, about 39% of the options were expiring this Friday. However, there are about 85,000 options traded Tuesday that are short-dated. Short term this is bullish, but as it gets later in the week, the stock might have trouble making gains as those short-dated options start to get monetized.

What's Next: Looking ahead, there aren't many of the weekly or monthly expiries that stand out in terms of volume, hence it looks like option traders are spreading their forward-looking bets over a range of expiries.

But the Dec. 17 and Jan. 21 monthly expiries have the largest open interest between the $380 and $390 strikes, with the current price (as of this writing) around $392. This suggests option traders have upgraded their price expectations with $380 holding support towards the holidays.

If however, the $380 strike fails to hold, then the next strongest strikes by volume are the $370 and $360 levels.