Home Depot Stock Takes a Breather After Downgrade

HD is testing its 20-day moving average this morning

The shares of Home Depot Inc (NYSE:HD) are down 1.2% to trade at $228.31 today, after Guggenheim cut its rating on the home improvement retailer to "neutral" and removed its $230 price target. The analyst in coverage is bearish on HD's relative valuation, and does not see a path to margin expansion in 2020 amid increased capital spending and expenses.

At last check, Home Depot stock was at the bottom of the Dow today. HD snagged a record high of $235.49 last Thursday, but today's pullback has it testing the 20-day moving average for the first time since mid-August. The shares are up almost 33% in 2019.

Over in the options pits, calls hold a distinct advantage. On the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 2.97 ranks 2 percentage points from an annual high. This means calls have been bought to open over puts at a much quicker-than-usual clip.

It's an attractive time to purchase premium on Home Depot options. The stock's Schaeffer's Volatility Index (SVI) of 44% registers in the 20th annual percentile, meaning short-term options are pricing in relatively low volatility expectations at the moment. Plus, the equity sports a Schaeffer's Volatility Scorecard (SVS) of 96 (out of a possible 100), meaning the security had handily exceeded options traders' volatility expectations during the past year.