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.
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
Chart courtesy of tradeMONSTER.)