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Calls bet on rebound in KB Home

Mike Yamamoto (mike.yamamoto@optionmonster.com)

Traders are betting that KB Home is ready to make a comeback.

optionMONSTER's Heat Seeker system shows that 9,434 May 17 calls were bought in one print for the ask price of $0.41 yesterday. This is clearly a new position, as its volume was well above the strike's previous open interest of 1,320 contracts.

These long calls lock in the price where the stock can be purchased through mid-May no matter how far it might climb. They could be sold earlier at a profit if premiums rise with a rally before then, but the contracts will expire worthless if shares remain below $17. (See our Education section)

KBH gained 1.71 percent to $16.65 yesterday. Shares had been trending lower since trading above $20 in late February but have been trying to find support at current levels in recent days. On April 11 the name was upgraded to "market perform" from "underperform by Keefe, Bruyette & Woods, which raised its price target to $18 from $16.

KB Home was hammered along with other builders in March when Janet Yellen addressed the prospect of higher interest rates in her first press conference as Federal Reserve chair. The stock then tried to recover but fell again when the broader market sold off earlier this month.

Total option volume in the name was just shy of 14,000 contracts yesterday, about 5 times its daily average for the last month. Overall calls outnumbered by 7 to 1, a reflection of the session's bullish sentiment.

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