Shares of homebuilder PulteGroup (PHM) have been sliding in recent months. But one investor sees the possibility for a rally in the coming months.
That’s based on the July $45 calls. With 92 days until expiration, 27,149 contracts traded compared to a prior open interest of 119, for a 228-fold rise in volume on the trade. The buyer of the calls paid $2.18 to get into the trade.
Shares recently traded for just under $42, so shares would need to rally about 7 percent for the trade to move in-the-money.
The homebuilder is down 23 percent in the past year. Earnings are up 51 percent over that time, and revenue is up 36 percent thanks to a strong market for housing.
Action to take: Investors may like shares here, as the company should still rally higher even with rising interest rates.
Market fears have driven the company’s valuation down to 5 times earnings and under 4 times forward earnings. Plus the recently-raised dividend can give today’s investors a starting yield of 1.5 percent.
For traders, the July calls are an inexpensive trade capable of moving higher by double-digits or better in the coming months.
Shares may move higher earlier, as the company next reports earnings on April 28. Traders may want to take profits, particularly if there’s a strong bounce following earnings.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.