Evercore's Bullish Housing Note Boosts Options Trading

Long-term housing sector weakness caused Evercore ISI to lower its price target on some stocks

by Karee Venema

Published on Oct 25, 2018 at 3:07 PM

Homebuilding stocks have taken a hit lately amid an onslaught of dismal housing data. The sector is higher today, though, on an upbeat pending home sales report and a bull note from Evercore ISI. The brokerage firm said to buy the weakness on housing stocks, and upgraded several names in the group to "overweight" from "inline," including KB Home (NYSE:KBH), PulteGroup, Inc. (NYSE:PHM), and Toll Brothers Inc (NYSE:TOL).

KB Home Call Options Pop

At last check, KB Home stock was trading up 6.5% at $19.77. This runs counter to the equity's longer-term trend, with KBH down 38.1% year-to-date, and fresh off yesterday's 19-month low of $18.54. Against this backdrop, Evercore also cut its price target on the equity to $25 from $27.

Options traders are targeting even more upside for KBH stock, too. Amid accelerated call volume -- the 3,017 contracts on the tape is almost twice what's usually seen at this point of the day -- data indicates new positions are being purchased at the November 22 call for a volume-weighted average price of $0.18. If this is the case, breakeven for the call buyers at the close on Friday, Nov. 16, is $21.82 (strike less premium paid).

PulteGroup Stock Looks to Snap 5-Week Losing Streak

Since topping out at near $33 back in mid-June, PulteGroup shares have slid 30% -- breaching their 200-day and 320-day moving averages along the way, and bottoming at a $20.64 on Tuesday, their lowest level since January 2017, before swinging higher on an earnings beat. Today, though, PHM stock is up 5.1% at $23.28, pacing for its first weekly win since Sept. 14.

And while Evercore ISI lowered its PHM price target to $28 from $29, today's options traders are targeting the more in-line $24 price level. Specifically, the December 24 and weekly 11/2 24-strike calls are most active, with sell-to-open activity detected at the former and buy-to-open action likely occurring at the latter.

Toll Brothers Stock Bouncing from Monday's New Low

Toll Brothers stock is trading up 5.1% this afternoon at $30.41, paring its year-to-date deficit to 36.7%. The shares are still stuck in a channel of lower highs and lows that started back in August, and tapped a 23-month low of $28.68 on Monday.

In the options pits, more than 1,500 calls and 1,200 puts have traded on TOL so far today -- 1.2 times the average intraday amount. The January 2019 24-strike call is most active, and new positions are being initiated here. More broadly, the December 40 put is home to peak open interest, and data from the major options exchanges confirms buy-to-open activity here.


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