Options Trading News

October 31, 2013  Thu 4:47 AM CT

Housing stocks fell on yesterday's announcement from the Federal Reserve, and option trading was mostly bearish in the space.

The central bank kept monetary stimulus in place but sounded less worried about an economic slowdown. That caused investors to think it will slow bond purchases, which would push interest rates higher.

KB Home lit up optionMONSTER's Depth Charge tracking system about 20 minutes after the statement was released as traders snapped up more 4,200 Weekly 18 puts expiring tomorrow. Most of the large blocks priced for $0.65, and volume was more than 40 times previous open interest at the strike.

Barely 2 minutes later, Toll Brothers saw heavy buying in the Weekly 34 puts for $0.65 to $0.83. Volume approached 4,000, compared with open interest of just 3 contracts.

Put buying locks in the price where a stock can be sold no matter how far it might drop. They can used to hedge long positions or to make outright bearish bets. (See our Education section)

KBH fell 2.62 percent to $17.49, and TOL shed 1.64 percent to $33.56. Both homebuilders are sensitive to interest rates, rallying sharply as Fed bond buying drove mortgage rates lower in recent years but struggling more recently.

Mexican cement giant Cemex has also tracked the group. It was active late in the session but saw more positive activity. Traders bought the December 11 calls for $0.43 to $0.44 in the afternoon, followed by the sale of 3,400 in-the-money January 2015 12 puts for $2.55. Both transactions will benefit from shares pushing higher. CX fell 3.38 percent to $10.59.
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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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