Option Idea of the Week: Masco Corporation

Schaeffer's Investment Research
  NOV 05, 2012 9:30 AM

Will MAS continue to defy the skeptics?

 


The shares of Masco Corporation (NYSE:MAS) -- which manufactures home improvement and building products -- have been on a tear in 2012, muscling more than 53% higher. Leading the stock into the black have been its 10-week and 32-week moving averages, which ushered MAS to a fresh two-year peak of $16.48 in mid-September. What's more, the security recently powered north of the $14.50-$15 neighborhood, which halted MAS' rally attempts from late 2010 until September 2012, but could now switch roles to act as support.



However, despite its technical prowess -- or its fundamental prospects in the wake of Hurricane Sandy -- MAS remains largely underloved on Wall Street. The security's Schaeffer's put/call open interest ratio (SOIR) stands at 2.15, indicating that puts more than double calls among options with a shelf-life of three months or less. Plus, this ratio sits just five percentage points from a 12-month peak, implying that short-term speculators have rarely been more put-heavy during the past year.

In the November series of options, the 15 strike is most popular, with more than 1,900 puts outstanding. In the short term, this abundance of bearish bets could translate into an added layer of options-related support for MAS.

Elsewhere, short interest jumped 10.5% during the past month, pointing to escalating skepticism among short sellers. Now, these pessimistic positions account for 6.9% of MAS' total available float, representing nearly a week's worth of pent-up buying demand, at the stock's average pace of trading. Should MAS extend its climb, a short-squeeze situation could amplify buying pressure on the shares.

In the same vein, just two of the 13 analysts following MAS deem it worthy of a "buy" or better endorsement. Likewise, the average 12-month price target on the stock sits at a measly $14.13, representing a discount to MAS' closing price of $16.13 on Thursday. Should the lingering skeptics among the brokerage bunch finally capitulate to the bulls' side, a wave of upgrades or price-target hikes could also add fuel to the equity's fire.
Investors expecting more upside for MAS should consider buying the stock's in-the-money April 13-strike calls, which were last asked at $3.70.

This article by Andrea Kramer was originally published on Schaeffer's Investment Research.

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