Options Trading News

November 16, 2012  Fri 4:45 AM CT

D.R. Horton fell sharply after missing revenue estimates this week, but traders are betting that the homebuilder will make a comeback by early next year.

About 6,700 DHI January 22 calls traded in a strong buying pattern for prices ranging from $0.16 to $0.34 yesterday, according to optionMONSTER's Heat Seeker tracking system. The volume was nearly 5 times the open interest at the beginning of the day, indicating new positions.

DHI rose 0.44 percent to close at $18.47 yesterday. Shares had run to multi-year highs over $22 with increasing signs of recovery in the housing market but plunged on Monday after the company reported quarterly revenues that were lower than expected.

Yesterday's call buyers are looking for the stock to gain roughly 20 percent by mid-January. The options could be sold earlier if their premiums rise before then, but the calls will expire worthless without a rally.

Overall option volume in the name was 10 times its daily average in the last month.
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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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