D.R. Horton, Inc (DHI) is a U.S. based homebuilder that builds and sells homes in states and cities across the country. DHI is currently trading around $28.70 in a 52 week range of $19.29-$29.29. The stock has been doing very well this year with shares rallying nearly 13.7% year to date. The stock looks very strong on a chart and is seeing a rally today of 2.5% ahead of releasing earnings tomorrow morning.

DHI has a very strong historical performance record on earnings. Over the past 12 quarters the stock has rallied 8 times on earnings day. The stock has also moved higher from earnings day to the nearest options expiration 9 times in the past 12 quarters. The stock is looking strong on a chart as well with shares trading well above the Ichimoku Cloud and the future cloud implying a sustained bull trend. With such strong technical and historical setups I would want to get long DHI into earnings.

On average DHI moves 6.57% on earnings day. This time around market makers are implying a move of around $2.05 by this Friday’s expiration. Using this implied move I can calculate an implied upside close for DHI on Friday then use that level as a target for an options trade. With stock at $28.70 that gives me an upside target of $30.75.

Possible trade: Buying the DHI Apr 24th Weekly 30-31 Call Spreads for $0.25
Risk: $25 per 1 lot
Reward: $75 per 1 lot
Breakeven: $30.25

This trade sets up with a 3-1 reward to risk ratio and gives a trader bullish exposure with a limited downside risk.

Andrew Keene

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