How Call Traders Doubled Their Money with PulteGroup Stock

At the time of our recommendation, PHM was near a historically bullish trendline

Deputy Editor
Apr 25, 2023 at 3:13 PM
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Earlier today, Schaeffer's Weekend Trader subscribers doubled their money with our suggested PulteGroup Inc (NYSE:PHM) July 50 call. Below, we'll dive into the telling points for this bullish bet on the homebuilding stock. 

At the time of our recommendation on Sunday, March 6, PHM had pulled back to its 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 had broken 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 were above the close that preceded that gap higher.

PHM Apr25 new

The brokerage bunch was not overly optimistic, with seven of the 16 analysts in question calling PulteGroup stock a "hold," leaving ample room for upgrades. Short sellers were in covering mode since early November, and the 7.85 million shares sold short made up for nearly four days’ worth of pent-up buying power.

There was also heavy put open interest (OI) buildup, with three puts exchanged for every call. A lot of this was 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.

On March 7 when the trade was entered, PHM was trading at $55.01. Since then, the stock has carved out a channel of higher highs, finishing in positive territory in seven of the last eight trading sessions. After the company reported an earnings beat this morning, the equity roared to a record high of $66.08. We exited the position with a closing price of $65.00, allowing subscribers to collect a 102% profit.


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