KBH broke out of a downtrend following an upbeat earnings report
Homebuilding concern KB Home (NYSE:KBH) recently broke out of a downtrend amid substantial volume stemming from an upbeat earnings report. The shares pulled back to retest support at the $34.05 level, which happened to be triple the stock's 2020 lows. In addition, KB Home stock has support from the key 320-day moving average, and has now regained all major daily moving averages, including bouncing today off of the 40- and 80-day moving averages -- which have been key in bull runs in the past. With this confluence of support in place, now is the ideal time to buy calls on KBH.
Analysts are relatively divided toward the equity. Of the 16 in coverage, nine rate it a "hold" or worse, versus seven that say "buy" or better. Still, the 12-month consensus target price of $44.92 is a 26.1% premium to current levels, leaving plenty of room for upgrades.
An unwinding of pessimism could propel the equity higher, too. Short interest rose 50.9% in the last two reporting periods, and the 4.24 million shares sold short make up a healthy 4.8% -of the stock's available float, or just over three days worth of pent-up buying power.
Lastly, options are relatively cheap at the moment, according to KBH's Schaeffer's Volatility Index (SVI) of 49%, which ranks in the 14th percentile of readings from the past year. This indicates options players are pricing in low volatility expectations at the moment. Additionally, the equity's Schaeffer's Volatility Scorecard (SVS) sits at 83 out of 100, indicating it has tended to exceed options trader's volatility expectations over the past year. Our recommended call has a leverage ratio of 4.6, and will double in value on a 21.7% fall in the underlying security.
Subscribers to Schaeffer's Weekend Trader options recommendation service received this KBH 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.