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Option Idea of the Week: PulteGroup, Inc. (PHM)

Is PHM ready to extend its recent uptrend?

by 1/17/2014 10:36:30 AM
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The U.S. housing market continued to show signs of improvement last year, and data released this morning revealed that both housing starts and building permits in 2013 soared to their highest level in six years. One homebuilder that's shown increasing promise in recent months is PulteGroup, Inc. (NYSE:PHM), which has tacked on an impressive 36% since hitting a mid-August low of $14.23. Helping the stock springboard higher has been its 40-day moving average -- currently located at $19.00 -- and a recent consolidation near this trendline could be signaling the stock's next move higher.

Daily Chart of PHM Since August 2013 With 40-Day Moving Average

Despite this strong technical showing, skepticism toward the security can still be found on the Street. In fact, although short interest declined 20.6% during the last two reporting periods, it still accounts for a healthy 6.3% of the PHM's available float, equating to nearly 22 million shares sold short. Going forward, a continued unwinding of these bearish bets could help boost PHM further up the charts.

Elsewhere, no fewer than nine out of 13 covering analysts maintain a "hold" or "strong sell" suggestion toward the stock. Plus the consensus 12-month price target of $19.84 sits a slight 2.4% above PHM's current perch at $19.38. Given the security's recent run higher, a round of well-deserved upgrades and/or price-target hikes could spark another surge of buying power for PHM.

Finally, the equity's Schaeffer's Volatility Scorecard (SVS) reading is docked at 75. In other words, PHM has tended to make outsized moves, relative to what the options market has priced in.

Traders eyeing additional upside for PulteGroup, Inc. (NYSE:PHM) may wish to consider buying the stock's in-the-money April 17 call, which currently sports an ask price of $2.96. However, those wanting to take a more moderate stance ahead of the company's quarterly earnings report -- slated for release ahead of the bell on Thursday, Jan. 30 -- could initiate a bull call spread by simultaneously selling PHM's April 23 calls, which were last seen carrying a bid price of $0.30.


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