KB Home (NYSE:KBH) is a homebuilder based in the United States with operations in Arizona, California, Colorado, Florida, Georgia, Illinois, Indiana, Nevada, New Mexico, North Carolina, South Carolina and Texas. Kaufman & Broad, the company's subsidiary, is a homebuilder with operations primarily in France. In addition to new construction, KB Home also provides mortgage banking services to the majority of its domestic homebuyers through its wholly owned subsidiary, KB Home Mortgage Company.
Stocks in the home building industry have weathered lots of bearish news during the last few weeks with many analysts forecasting a long-term "top" in the Materials & Construction sector due to the unfavorable outlook for interest rates. However, a few of the leading companies appear to have upside potential, as long as there are no surprises from the FOMC with regard to the federal funds rate. KBH is one of these issues and investors are supporting the share value near the current price in the wake of a recent "favorable" profit report and a subsequent upgrade by Friedman, Billings, Ramsey & Co.
Traders who agree with a bullish outlook for the residential construction group should consider this position. A "net-credit" order is the most conservative way to enter the spread, however the use of individual orders (for the long and short positions) will likely be the only way to achieve the target price if the underlying issue remains in a relatively small range during the next few sessions.
Fundamentals Chart Earnings Dates Analyst Ratings
PLAY (conservative - bullish/credit spread):
BUY PUT APR-100.00 KBH-PT OI=4370 ASK=$0.40
SELL PUT APR-105.00 KBH-PA OI=1684 BID=$0.65
INITIAL "NET-CREDIT" TARGET = $0.35-$0.40
POTENTIAL PROFIT (X 5 contracts) = $175
MARGIN REQUIREMENT (X 5 contracts) = $2325
RETURN ON INVESTMENT (max) = 7.5%
COST BASIS = $104.65
LOSS-LIMIT/EXIT POINT = $110.75 (cons) - $107.50 (aggr)