Pulte Homes (NYSE::PHM) engages in the homebuilding and financial services business in the United States. Its Homebuilding segment consists of Domestic and International Homebuilding units. The Domestic Homebuilding unit engages in the acquisition and development of land primarily for residential purposes and the construction of housing on such land targeted for the first-time, first and second move-up, and active adult home buyers within the continental United States. The International unit comprises the company's homebuilding activities in Mexico, Puerto Rico, and Argentina. The Financial Services segment involves in mortgage banking and title operations.
Shares of residential construction companies have been among the best performers in the stock market over the past few years and despite recent concerns of a housing "bubble," the industry should continue to produce outstanding profits in the coming quarters. Pulte Homes is one of the leaders in this category and last month, the company posted first-quarter net income of $218.2 million, or $1.66 per share, compared with $131.6 million, or $1.02 per share in the previous year. Pulte said domestic new home orders climbed 12% during the quarter and its backlog increased to 19,964 homes; a value of $6.5 billion in future sales revenue. The technical indications are also favorable as the recent upside activity in PHM has placed the share value nearly 10% above the cost basis in this spread. Traders who favor the outlook for the company's stock price in the near-term should consider this position.
Fundamentals Chart Earnings Dates Analyst Ratings
PLAY (less conservative - bullish/credit spread):
BUY PUT JUN-65.00 PHM-RM OI=3364 ASK=$0.25
SELL PUT JUN-70.00 PHM-RN OI=3256 BID=$0.60
INITIAL "NET-CREDIT" TARGET = $0.40-$0.45
POTENTIAL PROFIT (X 5 contracts @ $0.40) = $200
MARGIN REQUIREMENT (X 5 contracts) = $2300
RETURN ON INVESTMENT (max) = 8.6%
COST BASIS = $69.60
INITIAL EXIT STRATEGY:
Once the position is open, traders should place a (contingent) order to close the short ($70.00) put options if the stock price moves below $70.75 on an intraday basis. A "net-debit" order of $0.90-$0.95 to exit the entire spread may also be appropriate for some portfolios. Future adjustments to this loss-limit/exit point will be posted in the MCM Newsletter.