25 Mar This home improvement stock could see a rebound. An options trade to take advantage
Over the past two weeks, I’ve been closely tracking SPY and QQQ, highlighting the key indicators to watch for signs that this market correction might be nearing its end. Rather than relying solely on the traditional MACD (12,26,9) — which tends to lag price action — I opted for a more responsive setting: MACD (5,13,5). This faster version gave us an early signal on March 14, suggesting the correction could be behind us. Of course, early signals can sometimes be deceptive and generate false positives or “noise.” That’s why it’s important to seek confirmation from a longer time frame. In this case, the standard MACD (12,26,9) served as that secondary filter. We finally saw that confirmation yesterday, which strengthens the case that this pullback has run its course and momentum may be shifting upward. Though corrections can be tough to sit through, they’re a healthy part of market cycles, helping to bring valuations back to earth and creating opportunities for new money to enter. Right now, that reset is creating compelling setups across sectors like consumer discretionary, financials and technology — many of which are trading at attractive levels. The stock I’ve chosen for this trade is Home Depot (HD) . Between Feb. 14 and March 14, HD dropped an eye-catching 17%, participating in the broader market correction. However, the stock is now beginning to show signs of mean reversion, suggesting a potential rebound may be underway. For this setup, I’m leaning on a combination of technical indicators to build the case for a bullish move: RSI (Relative Strength Index): When RSI dips below 30, it signals that a stock is in oversold territory, often prompting traders to look for signs of a reversal. In HD’s case, the RSI fell under 30 between March 12 and March 19 before bouncing back, indicating that the stock could be entering the early phases of a recovery. DMI (Directional Movement Index): The Directional Movement Index (DMI) consists of three key components: DI+ (green), DI− (red), and ADX (blue). A sustained downtrend is typically confirmed when DI− remains above DI+. However, when these lines begin to converge or shift direction, it can signal that momentum is changing. In HD’s current setup, both DI− and DI+ are starting to reverse course, which could be an early indication of a potential trend reversal. Support/Resistance: Although this trade requires HD to reach $365 to achieve a 100% return on investment, it’s worth noting that the next major resistance level sits much higher at $380. This gives HD plenty of upside room before encountering any significant selling pressure. The trade setup: HD 360-365 Bull Call Spread To express a bullish view on HD, I’m using a bull call spread strategy. With the stock currently trading around $363, the trade is structured by buying a $360 call and selling a $365 call as a single unit. If HD closes at or above $365 by April 25 — just a $2 move from the current price — this trade will deliver a 100% return on the capital risked. It’s a smart way to capture upside potential while keeping the risk-reward ratio clearly defined. With 10 contracts, you’d be risking $2,500 for the chance to earn $2,500. Here is my exact trade setup: Buy $360 call, April 25th expiry Sell $365 call, April 25th expiry Cost: $250 Potential Profit: $250 Setups like this are explored in detail in my book, Mean Reversion Trading , available here . For more trade ideas and in-depth analysis, visit my website . -Nishant Pant Founder: Author: Mean Reversion Trading YouTube, Twitter: @TheMeanTrader Get Your Ticket to Pro LIVE Join us at the New York Stock Exchange! Uncertain markets? Gain an edge with CNBC Pro LIVE , an exclusive, inaugural event at the historic New York Stock Exchange. In today’s dynamic financial landscape, access to expert insights is paramount. As a CNBC Pro subscriber, we invite you to join us for our first exclusive, in-person CNBC Pro LIVE event at the iconic NYSE on Thursday, June 12. Join interactive Pro clinics led by our Pros Carter Worth, Dan Niles, and Dan Ives, with a special edition of Pro Talks with Tom Lee. You’ll also get the opportunity to network with CNBC experts, talent and other Pro subscribers during an exciting cocktail hour on the legendary trading floor. Tickets are limited! DISCLOSURES: Nishant has a HD 360-365 call spread expiring on April 11. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . 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