Fed action spurs puts in housing
David Russell | [email protected]
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.