Calls see turnaround in H&R Block

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H&R Block has lunch meat for the bears for months if not years, but now the bulls are looking for a rally.

optionMONSTER's Heat Seeker tracking system detected heavy call buying and put selling in the tax-preparation company, which has been steadily losing market share to software companies like Intuit, the maker of TurboTax. But recent trades reflect a belief the stock is near a bottom and may push higher.

The December 14 calls traded more than 21,000 times, mostly for $0.25 to $0.35, with purchases dominating the activity. Investors also sold about 19,000 December 13 puts for $0.30 to $0.55. Volume was more than 4 times open interest in both strikes.

HRB More than 55,000 contracts changed hands overall in the name yesterday, compared with the average of 10,075 per session.

HRB rose 4.07 percent to $13.55 yesterday and is up 34 percent from its depths on Oct. 20, when it bottomed at $10.13. That was its lowest price in almost a decade and suggests that a resistance level from the 1990s is now providing support.

About 13 percent of the float had been sold short as of mid-November, and the company has essentially no net debt. That means bankruptcy is not a risk and now both value investors and shorts may step in as buyers.

The important thing is that HRB has more than 12,000 offices across the U.S. If management concocts a new strategy and introduces new products or services, now could be a great buying opportunity for the stock. (Guy also recommended the shares in his Advantage Point newsletter last month.)

There have been other precedents for such turnarounds: Companies like McDonald's and Apple were also struggling about eight years ago, but revamped their businesses and have doubled and tripled many times since. Even if HRB doesn't have a plan like them, investors might still buy the stock for now and just hope. If they don't we can always buy puts down the road!

(A version of this post appeared on InsideOptions yesterday. Chart courtesy of tradeMONSTER.)



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


This article appears in: Investing , Options

Referenced Stocks: HRB , INTU

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