For those that hold shares in the United States' largest tax return preparation company, H&R Block, they've become used to watching their net-worth flushed away, day after day, down the Kansas City company's crapper. From a 52-week high of $23.23, one can only hope to receive between $13.93 and $14-even, should they wish to unload this Wall Street turd.*
And, if savvy market investors are to be believed, they should prepare for the stock to drop faster than a plastic surgeon's Jeep down the side of a mountain: The Street has voted with their Put Options, and the message is clear...
HRB stock is about to tank.
A put option is sh-tty-stock insurance.
The option is a contract between two parties, wherein the buyer purchases the right to sell a stock for a specified price, regardless of what the stock is trading at. Using Block as the example, 3,237 investors bought a put option, allowing them to sell the stock at an agreed-upon price (say, $14.00) even if HRB takes a sh=t and tumbles to, say, $11.50.
A call option, on the other hand, is the opposite: The right to buy a particular stock at an agreed-upon price. Using the same examples, if the purchased of a call option agrees to $14.00 for the purchase price on, say, 10,000 shares, and the stock rises to $22.00, the call option-holder can buy the stock at $14.00, and turn right around and sell it for market price.
H&R Block options saw high put activity today. A total of 3,237 put and 234 call contracts were traded. Thus, today's traded put/call ratio is 13.83:1, meaning for every one optimistic trader who believes HRB stock is on the rise, there are nearly 14 for whom HRB has set off their "Oh, sh-t" alarm.
Investors use the Put/Call ratio as a barometer for investment sentiment; how the Market feels about a stock's trajectory. A high Put/Call ratio suggests that the investor sentiment is bearish, and that investors are expecting that Block stock is going to decrease even further! Conversely, if more people are placing Call orders, versus Puts, the word on the Street would be that the stock is going to rise.
Most importantly, unusual volume provides a reliable clue that the stock is expected to make a move.
H&R Block announced last week that their 1Q-2011 earnings would be released during their conference call on September 2nd. This announcement came just days after the IRS said they will discontinue reporting clients' debt-indicator information, a key ingredient for Block's controversial but profitable refund anticipation loan business. (See "H&R Block Becomes First Corporation To Attempt Suicide, After IRS Discontinues RAL Debt Indicator", elsewhere)
Of course, H&R Block will spend a considerable amount of time during their earnings call explaining how there is no need to fear, and that profitability is just around the corner.
But the Market knows better: The albatross that is H&R Block's stock is going to fly above the heads of every person who has spent their hard-earned money into the company, and take a gigantic dump all over the shareholders.
Caveat Emptor, suckers.
* Shares of H&R Block closed at $14.01 in the previous trading session and opened today at $14.04. HRB is currently trading at $13.93, down $0.08 (-0.57%) in today's trading session. The shares of the stock are trading between $13.69 and $14.08. Today's volume of 3,301,862 shares is less than the average volume of 4,615,640 shares. HRB is trading below the 50 day moving average and lower than the 200 day moving average. The stock's 52 week low is $13.44 and 52 week high is $23.23.