Weekend Trader Alert
February 19, 2023
Open Positions Update
- Close the Workday (WDAY) March 17, 2023, 170-strike call on Tuesday, February 21. Close the position at a limit price within the range of the current market price when you place the order.
- Close the Newmont (NEM) April 21, 2023, 52.50-strike put on Tuesday, February 21. Close the position at a limit price within the range of the current market price when you place the order.
- Close the Valero Energy (VLO) June 16, 2023, 135-strike call on Tuesday, February 21. Close the position at a limit price within the range of the current market price when you place the order.
The following is this week's recommendation:
D. R. Horton (DHI)Place a limit order to buy the D. R. Horton (DHI) April 21, 2023 100-strike put at a limit price within range of the current market asked price when you place your order. At the close on Friday, February 17, this option was offered at $7.90. DHI closed at $94.38 on Friday, February 17.Do not attempt to enter this position after Tuesday's close.Please use the following guidelines to manage the position:
- Exit the position if the option is at a 100% gain from your entry price.
- If the option has not reached its target profit by 3:00 p.m. Eastern time on Monday, March 13, close the position.
- If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.
The shares of D. R. Horton (DHI) recently failed to conquer the +10% year-to-date level and the $100 region, and broke below a trend that lasted from November to February. What’s more, the stock could fill a gap around the $78-$80 area, and is breaking below peak put open interest, which could create a delta hedge and push prices toward the 80- and 85-strikes. With this in mind, we are initiating a short position on DHI.
Analysts still lean firmly bullish on D. R. Horton stock, with 13 still calling the security a “buy” or better, while the remaining nine say “hold” or worse. This leaves ample room for downgrades moving forward.
Options look like a good way to go when weighing in on DHI. The stock is seeing attractively priced premiums right now, per its Schaeffer's Volatility Scorecard Index (SVI) that sits in the low 10th percentile of its annual range.
Our recommended April 100-strike put has a leverage ratio of -6.18, and will double in value on a 13.9% drop in the underlying shares.
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