Options Trading News

June 25, 2013  Tue 4:45 AM CT

Hovnanian has been hammered along with other homebuilders in the last week, but one trader is betting that the stock will pop in the next two months.

optionMONSTER's Heat Seeker system detected the purchase of 4,900 August 5 calls in less than 10 seconds yesterday for $0.55. This is clearly fresh buying, as the volume was well above the strike's open interest of 1,654 contracts before the trade appeared.

These long calls, which lock in the purchase price for the stock, will track the share price closely because they are in the money. They are looking for HOV to rise above $5.55 by expiration in mid-August but will rapidly lose value if the shares don't advance in coming weeks.
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HOV fell 4.11 percent yesterday to close at $5.36, right at its 200-day moving average. The sector had run up to multi-year highs with the housing recovery but has been hit hard in recent days on fears that rising interest rates will curtail demand.

Total option volume in the name was 16,681 contracts, 7 times its daily average for the last month. Calls outnumbered puts by more than 10 to 1, a further indication of the session's bullish sentiment.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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