Options Trading News

June 21, 2013  Fri 4:45 AM CT

Lennar got hammered along with other homebuilders yesterday, but one investor isn't giving up hope.

optionMONSTER's Heat Seeker monitoring system detected the purchase of 5,000 July 36 calls for $1.51 and the sale of an equal number of July 40 calls for $0.41, resulting a cost of $1.10. Volume was below open interest in the 40s, so there are two possible explanations of the activity.

If both halves of the trade are new positions, the strategy is a bullish vertical spread with a maximum profit of 263 percent on a move to $40 or higher. Alternatively, the trader could be rolling a long position in the 40s down to the 36s, which would maintain a strong correlation between the calls and shares of the Miami homebuilder. (See the discussion of delta in our Education section.)

LEN fell 7.69 percent to $34.94 yesterday. It more than tripled between October 2011 and early this year but has been trending lower in the last month. Yesterday's trader apparently thinks that the stock is still bullish and is looking for a rebound in the next four weeks.

Second-quarter earnings will be reported on Tuesday.

Total option volume in the name was 7 times greater than average in the session, according to the Heat Seeker. Calls outnumbered puts by 3 to 1.
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I have written a few things on the Covered Call Strategy over the last two weeks. Please understand that those two previous articles plus this one do not constitute a proper, fully in-depth lesson on the Covered Call Strategy like we have in our classes at Option Monster Education. I have picked out a few topics that I believe were worth noting and today I am going to add the final one.

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