Most Active Options: Toll Brothers Inc and KB Home

Toll Brothers Inc (NYSE:TOL) and KB Home (NYSE:KBH) options traders have been unusually bearish in recent weeks

Dec 19, 2016 at 11:58 AM
facebook twitter linkedin

The 20 stocks listed in the table below have attracted the highest total options volume among mid-cap names during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. Two names of notable interest are homebuilder stocks Toll Brothers Inc (NYSE:TOL) and KB Home (NYSE:KBH), after sector peer Lennar Corporation (NYSE:LEN) delivered strong quarterly earnings. Here's a closer look at how options traders are lining up on TOL and KBH.

MAO Dec 19_ 2016

Options traders have been unusually bearish toward TOL in recent weeks. The stock's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) comes in at 1.40, which ranks in the 83rd annual percentile, revealing put buying has been more popular than normal. 

But while the bearish bias has been growing among speculators, it's been dwindling elsewhere. Specifically, short interest on TOL declined by nearly 18% during the most recent reporting period. The stock's short-interest ratio now sits at a modest 2.70. Plus, 60% of analysts strongly recommend buying the stock, and zero have issued a "sell" rating -- while Barron's has extremely high hopes for 2017

Looking at the charts, shares of TOL have been fighting back after a forgettable start to the year. The stock has managed a series of higher highs and lows since February, but could struggle as it approaches the year-to-date breakeven level, as well as its long-term 36-month moving average. At last check, TOL was up 1.7% at $32.14. 

Options traders have been even more bearish on KBH. The stock has posted a put/call volume ratio of 5.42 during the past two weeks, putting it just 11 percentage points from a 12-month high. Not to mention, the equity has a Schaeffer's put/call open interest ratio (SOIR) of 5.34, which ranks in the 97th annual percentile. This tells us that traders targeting options expiring within three months are way more put-skewed than normal right now. 

Looking closer at KBH's options activity, the 10 largest open interest positions are all puts. The January 2017 16-strike put saw the largest increase in open interest during the past two weeks, and data from the major options exchanges confirms substantial buy-to-open activity. In other words, traders are betting on the shares breaching the $16 level in the weeks ahead.

This skepticism is rather surprising, given the stock's performance on the charts this year. KBH has climbed 34% in 2016 to trade at $16.56, with the rising 200-day moving average stepping up as support during a recent pullback. Considering the bearish tilt among options traders, and the fact that 11 of 13 analysts say to hold or sell the stock, KBH has all the makings of a bullish contrarian play

For prospective traders, now appears to be a good time to target either stock's short-term options. For instance, Toll Brothers Inc (NYSE:TOL) has a Schaeffer's Volatility Index (SVI) of 26%, which ranks in the 14th annual percentile, while KB Home's (NYSE:KBH) SVI of 37% ranks in the 26th percentile of its annual range. In short, the options market is currently pricing in low volatility expectations on short-term contracts for TOL and KBH. 

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.

If you are not making money with options, you aren’t buying options like this…

There is no options strategy that more perfectly approaches trading the fastest moving and most volatile stocks available in the marketplace than this one. In fact, there is no strategy that better utilizes put options for optimal returns and a real trading edge over other traders in the exact same market. New options traders fail out at an incredible rate without proper trade research, execution timing, and option picking. Capitalize on Schaeffer’s 100+ years of options trading excellence with the most coveted product launch in company history. Don't waste another second... join us right now before the next round of trades are released!

Schaeffer's Investment Research Stock Pick Report


Special Offers from Schaeffer's Trading Partners