As D.R. Horton, Inc. (DHI) Drags On Builders, Option Traders Keep the Faith

D.R. Horton, Inc. (DHI) warned of a drop in gross margins, but call buyers remain active

by Andrea Kramer

Published on Apr 22, 2015 at 2:19 PM

Despite encouraging housing stats on a broader scale, D.R. Horton, Inc. (NYSE:DHI) is dragging homebuilders into the red. The shares of DHI were last seen 6.1% lower at $26.81, after the firm reported lackluster growth in average selling prices and warned of a drop in current-quarter gross margins. Nevertheless, option traders are keeping the faith.

DHI options are crossing the tape at six times the average intraday pace, but calls have outnumbered puts by a margin of 6-to-1. Digging deeper, it appears speculators are buying to open the May 28 call, amid hopes for DHI to climb back atop $28 by the close on Friday, May 15, when the options expire.

The bullish bias is just more of the same for DHI. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators were buying to open DHI calls over puts at a near-annual-high clip leading up to earnings. Specifically, the stock's 10-day call/put volume ratio of 19.95 stands higher than 94% of all other readings from the past year.

Echoing that, the security's Schaeffer's put/call open interest ratio (SOIR) is docked at an annual low of 0.27. In other words, short-term traders haven't been more call-heavy during the past 12 months.

Prior to today's post-earnings dip -- which has D.R. Horton, Inc. (NYSE:DHI) set to end beneath its 50-day moving average for the first time since late January -- the stock was flirting with eight-year highs just south of $30. Furthermore, the security had outperformed the S&P 500 Index (SPX) by nearly 15 percentage points during the past three months.

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