Earnings Preview: Lennar Corporation (LEN)

Lennar Corporation (LEN) option bulls are betting on a post-earnings win for the homebuilder stock next week

Dec 16, 2016 at 1:22 PM
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Homebuilder Lennar Corporation (NYSE:LEN) is due to report earnings ahead of the bell on Monday. While homebuilder confidence has improved since the most recent U.S. presidential election, recent data on November housing starts showed a sharper-than-expected decline from October's highs, offering mixed signals on the housing market recovery. In any case, option buyers are betting on some extended upside for LEN.

Ahead of Monday's earnings call, LEN is trading up 0.7% at $43.66 so far today. The stock has managed to recover 9% since its November lows, riding post-election momentum and short covering, but backed down from its 200-day moving average. However, it appears the shares may have found a level of support from their 30-day moving average.


In the option pits, LEN's calls are trading at seven times their average intraday pace, and currently outpace calls 16-to-1, with 4,887 calls crossing the line so far today. It appears one trader may be rolling a bullish position higher ahead of options expiration today, liquidating 1,876 in-the-money December 42 calls to scoop up an equal number of January 2017 46-strike calls.

Widening the scope, today's appetite for calls isn't unusual for LEN option players. LEN's 20-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows 1.63 calls bought to open for every put over the last four weeks of trading. Drilling down, the December 45 call is LEN's top front-month open interest position, and in the January series -- which assumes front-month status after tonight's close -- the 44-strike call is king.

On the earnings front, LEN has averaged a single-session, post-earnings move of 2.8%, finishing six of the last eight in the red. This time around, LEN option players are pricing in a 3.7% single-day swing in either direction. Given that Lennar Corporation (NYSE:LEN) short interest is down by 40.6% over the last reporting period, it would appear it's not just option bulls expecting more upside for LEN. 

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