Homebuilding Stock for Bulls to Buy on the Dip

There's room for optimism to grow in the options pits

Mar 7, 2023 at 12:20 PM

The shares of homebuilder PulteGroup, Inc. (NYSE:PHM) are pulling back to the historically bullish 40-day moving average, with similar moves in the past three years preceding gains of nearly 10% during the next month in 80% of the circumstances.

The equity also broke out above a short-term trendline connecting lower highs since its late-January quarterly report, which led to bull gap. The stock’s recent lows are above the close that preceded that gap higher.

The brokerage bunch is not overly optimistic, with seven of the 16 analysts in question calling PulteGroup stock a "hold," leaving ample room for upgrades. It’s also worth noting short sellers have been in covering mode since early November, and the 7.85 million shares sold short now make up for nearly four days’ worth of pent-up buying power.

There’s been heavy put open interest (OI) buildup, with three puts exchanged for every call. A lot of this is occurring at potential support areas such as the April 40- and 50-strikes, as well as the 55-strike in the upcoming standard March series.

Our recommended July call has a leverage ratio of 5.1, and will double in value on a 19.9% rise in the underlying shares.

Subscribers to Schaeffer's Weekend Trader options recommendation service received this PHM 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.

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