Homebuilding concern KB Home (NYSE:KBH) recently broke out of a downtrend amid substantial volume stemming from an upbeat earnings report. The shares pulled back to retest support at the $34.05 level, which happened to be triple the stock's 2020 lows. In addition, KB Home stock has support from the key 320-day moving average, and has now regained all major daily moving averages, including bouncing today off of the 40- and 80-day moving averages -- which have been key in bull runs in the past. With this confluence of support in place, now is the ideal time to buy calls on KBH.

Analysts are relatively divided toward the equity. Of the 16 in coverage, nine rate it a "hold" or worse, versus seven that say "buy" or better. Still, the 12-month consensus target price of $44.92 is a 26.1% premium to current levels, leaving plenty of room for upgrades.

An unwinding of pessimism could propel the equity higher, too. Short interest rose 50.9% in the last two reporting periods, and the 4.24 million shares sold short make up a healthy 4.8% -of the stock's available float, or just over three days worth of pent-up buying power.

Lastly, options are relatively cheap at the moment, according to KBH's Schaeffer's Volatility Index (SVI) of 49%, which ranks in the 14th percentile of readings from the past year. This indicates options players are pricing in low volatility expectations at the moment. Additionally, the equity's Schaeffer's Volatility Scorecard (SVS) sits at 83 out of 100, indicating it has tended to exceed options trader's volatility expectations over the past year. Our recommended call has a leverage ratio of 4.6, and will double in value on a 21.7% fall in the underlying security.

Subscribers to Schaeffer's Weekend Trader options recommendation service received this KBH commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

Options trading was officially introduced in 1972 by the Chicago Board Options Exchange (CBOE) with standard options, while calls and puts were further adjusted in 1977. The transactions for options trading were made easy, and options contracts came with standardized terms. Fast forward well over 40 years and options trading went on to develop with a new derivative, weekly options. Weekly options are similar to standard options and possess the same product specifications for other listed contracts, but are short term and expire on weeks when standard options do not. Weekly options expire almost every week, unlike monthly options that expire once per month.

Weekly options trading can result in extreme profits, but those profits can also be incredibly volatile if all market and stock factors are not considered prior to trading and while the trade is active. Traders of all kinds must utilize the best available trading strategies in order to produce consistent gains. This can be done by maximizing weekly options trading strategies. 

Schaeffer's Investment Research offers a variety of weekly options trade recommendation services including Schaeffer's Weekly Options Countdown, Schaeffer's Weekly Volatility Trader, and Schaeffer's Weekly Options Trader. All of these weekly options trade recommendation services provide precise entry and exit instructions for each weekly options trade, as well as detailed commentary explaining the rationale for every trade so subscribers can learn directly from the professionals while still capturing profit in their own trading portfolios.

If you find yourself still skeptical about trading weekly options and what weekly options could do to transform your current trading portfolio, let this article provide you with exactly why you should be trading weekly options.

How do Weekly Options Differ from Monthly Options?

Weekly options and monthly options are actually quite similar—the primary difference between the two lies in the expiration dates. Monthly options expire every month on third Friday of the month, whereas weekly options expire almost every Friday and are issued on Thursdays.

Traders who were previously limited to just 12 options expirations each year with monthly options now have the opportunity to capitalize up to 52 expirations by adding the tool of trading trading weekly options to their trading portfolio.

Weekly Options are More Cost-Effective than Monthly Options

Weekly options do tend to trade at the lowest of prices as compared to monthly options. Weekly options are a lot less expensive than shares of the stock and also less expensive than standard options. This is because the time duration is extremely limited with weekly options, and traders have only a couple of days to wait for the underlying stock to make the predicted move. Do not be scared off by the quickness of these weekly options trading opportunities. The increased volatility within the weekly options trade holding period presents an increased profit-taking opportunity moreso than an increase in risk.

Weekly Options Listings Feature More Popular Underlying Stocks

Weekly options listings change every week, especially because the weekly options expiration period is limited.  The CBOE is always in a constant process of listing attractive weekly options to increase trading volume. This is why traders have seen such a significant rise in the popularity of weekly options over the last few years. High-volume stocks are the most likely going to make it to the new weekly options list each week. This offers credible weekly options with an active trading base for option buyers and sellers. Additionally, the weekly options listings may also include stocks that are slated to announce big news in the near-term.

Weekly Options Allow Traders to Earn Profits and Cut Losses Faster

Keep in mind that, when it comes to weeklies, traders are capitalizing on a lot of volatility. Though the specifications are similar to standard options, the weekly options' short-term nature is what makes it a delicate game to play. With the ability to enter and exit positions more quickly, traders have a greater chance of refining his trading skills and maximizing his profits through repeated actions.

Weeklies can also help traders overcome losses faster. Unlike standard options with only 12 expirations per year, weekly options come with 40+ more expirations annually to help even out a trader's equity curve and make up for losses through volume of opportunities.

Weekly Options Maximize Profit Potential

Weekly options allow traders to profit during any kind of market environment. The short-term nature of weekly options trades calls for efficiency in a fast-paced stock market that can be highly unpredictable for long-term investments. With weekly options trades, traders can benefit from buying cheaper options and then selling them for more than purchased over a short period of time.

Regardless of the price movement, it is always possible to see triple-digit returns with weekly options buying. Unlike stocks that only benefit investors if the stock price increases, weeklies let traders benefit regardless of the stock price direction.

Every day for the next two weeks, we're going to highlight one of Schaeffer's top 14 picks for 2021. Up today is an oft-overlooked retail stock. To access the entirety of the 2021 report, click here.

Meanwhile, short interest on the retailer has been declining since rallying off its summer lows. In fact, short interest now accounts for a heavy 39% of DDS’ float, which would take shorts sellers nearly 11 days to cover, at the stock’s average pace of daily trading.

Lastly, and unwinding of bearish sentiment could trigger a fresh round of tailwinds, sending the security even higher in the coming year. First, in the options pits, puts have been popular for short-term traders, with the stock’s SOIR of 1.23 ranking in the 81st annual percentile. In terms of analyst attention, room for upgrades is plentiful, as all five covering brokerage firms sport a tepid "hold" or worse recommendation.  

Tony Venosa, CMT, is a Senior Options Strategist at Schaeffer's Investment Research. He's has over 20 years of trading experience under his belt -- including a stint in the mid-'90s clerking in the S&P 500 trading pits in Chicago, plus time spent as a commodity broker and proprietary day trader. A graduate of Miami University with a B.S. in finance and decision sciences, Venosa earned his Chartered Market Technician designation in 2008, and has been part of Schaeffer's in-house research team since 2010.

Truck manufacturer PACCAR Inc (NASDAQ:PCAR) just announced a partnership with self-driving car startup Aurora. The two firms plan on developing autonomous versions of PACCAR's Peterbilt and Kenworth trucks, with Amazon (AMZN)-backed Aurora providing its self-driving technology and PACCAR providing aftermarket parts distribution, as well as finance and transportation solutions. As a result, PCAR is up 3.5% at $92.35. 

Today's bump brings PCAR closer to its Nov. 9 record high of $95.05. In fact, the $92 level acted as a ceiling for the equity back in late October and early November. While the stock briefly overtook this region to hit that high, a near immediate pullback occurred. The $84 mark, which has acted as a floor since July, deftly captured this pullback, while the 140-day moving average also provided support on the charts. 

Despite its positive price action, analysts are still lukewarm on the security. Just four of the 15 in coverage call PCAR a "strong buy," while 11 say "hold" or worse. Meanwhile, the 12-month consensus price target of $94.48 is a slim 5.9% premium to current levels. 

Option bulls, on the other hand, are likely cheering today's positive price action. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), PACCAR stock sports a 50-day call/put volume ratio of 19.70, which stands higher than all other readings from the past year. This means calls have been picked up at an unusually fast pace compared to puts during the past 10 weeks.

Calls are king during today's trading, too. Within the first hour of trading, 163 calls have crossed the tape -- eight time the intraday average -- compared to 44 puts. Most popular is the March 92.50 call, where positions are being opened. 

The Cheesecake Factory Incorporated (NASDAQ:CAKE) is up 2.4% to trade at $42.56 today, a chip-shot from its Feb. 20 annual high of $43. Today's bump comes after Wedbush and Deutsche hiked their price targets to $49 and $47, respectively, and puts the stock's year-to-date gain already as 15%.

The analyst shift is no surprise, considering CAKE has nearly tripled off its March 17 decade lows of $14.52. Nevertheless, nine of 16 analysts in coverage maintain "hold" or worse ratings. Plus, the consensus 12-month price target of $37.41 is a 12.3% discount to its current perch. In other words, more bull notes could be on the horizon for the restaurant stock.

There are two competing indicators facing off for CAKE. First, there's the stock's 14-day Relative Strength Index (RSI) of 77, indicating that the stock is well into "overbought" territory. However at the same time, a healthy 26.6% of CAKE's total available float is sold short, and the ascending 80-day moving average has guided the equity higher in recent months.

Regardless of direction, now looks to be an attractive time to bet on the restaurant stock's next moves with options. This is per Schaeffer's Volatility Index (SVI) of 54%, which sits in the 10th  percentile of its annual range. In simpler terms, options players are pricing in relatively low volatility expectations right now.

Like all too many companies in the food and restaurant industry, The Cheesecake Factory posted some significant losses in 2020. The company lost about $300 million in net profits and revenue over the past year. CAKE also suspended its quarterly dividend back in May of 2020. However, The Cheesecake Factory has likely already endured the worst of the pandemic. With many other restaurants forced to close, CAKE investors are hoping the company can capture a greater percentage of the market share. CAKE’s historically sound revenue growth and its diverse restaurant concepts make the company an intriguing candidate to come out much stronger than it was prior to the COVID-19 pandemic.

New Residential Investment Corp. (NYSE:NRZ) is a real estate investment company headquartered in New York City. The corporation focuses on managing and investing in residential mortgage related assets. They also provides capital and services to the mortgage and financial services industries.

Last month, NRZ announced its fourth quarter 2020 common stock dividends. The board declared a quarterly dividend of $0.20 per share of common stock for the fourth quarter of 2020, representing an increase of 33% from its previous quarter’s common share dividend. This increase also brings New Residential Investment's forward dividend up to $0.80 and its dividend yield up to an outstanding 8.51%.

The company has paid dividends since 2013, but had cut its dividend in April of 2020 from $0.50 per share to $0.05 as a result of the COVID-19 pandemic. New Residential Investment has since raised its dividend every quarter by increments of $0.05.

It's been a rough 12 months for NRZ stock though. Sporting a 43% year-over-year deficit, the shares' slow climb out of its April 3 record lows has been recently stymied by their 320-day moving average.

New Residential Investment has beat Wall Street's expectations for earnings in three of its last four earnings reports. While earnings per share (EPS) reported shrank from $0.61 per share for the fourth quarter of 2019 down to $0.31 per share for the third quarter of 2020, NRZ outperformed expectations throughout the last 12 months. 

Overall, NRZ maintains its position as one of the most secure high-paying dividend stocks which is what attracts so much attention from the retail sector. The company quickly resumed its dividend growth following the COVID-19 blow it took, and is likely to continue doing so based on its fundamentals. Some of the most concerning aspects of investing long-term in NRZ are the company's large debt amount and the substantial revenue hit New Residential Investment took in 2020.

Blue-chip insurance stock Travelers Companies Inc (NYSE:TRV) is up 0.5% at $143.83 at last check, after earlier hitting $144.29 to surpass last session's annual high of $144.12. On its way higher since an early-November bull gap, TRV's latest pullback was caught by the 50-day moving average, with shares breaking through resistance at the $140 region last week. What's more, today's positive price action comes just ahead of the company's fiscal fourth-quarter earnings report, due before the open on Thursday, Jan. 21. 

Leading up to the event, the options market is pricing in a post-earnings move of 3.3%, which is just barely lower than the security's average post-earnings swing of 3.4% from the last eight reports, regardless of direction. A look back at these reports shows that TRV closed two of these next-day sessions higher, while one of those days was flat. However, it's worth noting that last quarter the stock experienced a 5.6% pop. 

Despite the recent rally, most analysts are hesitant toward the equity. Out of the 17 analysts in coverage, 13 carry a "hold" or worse rating, leaving plenty of room for a round of upgrades to act as a tailwind. 

Meanwhile, the options pits lean overwhelmingly bullish. This is per TRV's 10-day call/put volume ratio of 6.61 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio sits higher than 97% of all other readings from the past year, indicating calls are being picked up at a faster-than-usual clip. 

Now could be a good time to weigh in on these TRV options. The stock's Schaeffer's Volatility Index (SVI) of 27% stands higher than just 10% of all other readings in its annual range, implying that options players are pricing in relatively low volatility expectations at the moment.