Options Trading News

December 9, 2013  Mon 12:13 PM CT

Housing is grabbing attention today, and one investor is playing the trend with a highly leveraged trade in Home Depot.

optionMONSTER's Heat Seeker monitoring system showed bullish activity in names such as D.R. Horton and Toll Brothers shortly after the opening bell. Then some large blocks hit in HD about halfway through the morning.

An even 5,000 February 77.50 calls were bought for $3.93, and an equal number of February 77.50 puts were sold for $1.52. Volume surpassed open interest at each strike, indicating that new positions were initiated.

The trade cost $2.41 and will behave almost identically to owning shares in the home-improvement retailer. The main difference is that the trader paid a fraction of the stock price up-front, resulting in potentially massive leverage. For instance, a 10 percent move in underlying equity will more than quadruple the initial outlay.

HD is down fractionally to $79.80 in afternoon trading. It doubled between late 2011 and early 2013 along with other housing-related stocks and has been consolidating since. But the shares have been making higher lows above their 200-day moving average since September, which could make some traders think that it's ready to rally again.

A block of 2,000 February 67.50 puts was also sold for $0.22 around the same time as the bullish synthetic trade. While it isn't clear the transactions were related, the put selling also reflects positive sentiment toward the name.

Housing-related stocks have lagged the broader market in the last six months as investors worry that an improving economy will push up interest rates. Those fears increased with strong manufacturing and employment data last week, but the group has nonetheless been swimming upstream since the summer. (See our researchLAB market scanner to analyze the performance of more than 100 industry groups over different time periods.)

Total option volume in HD is about 50 percent greater than average so far today.
Share this article with your friends


Premium Services

Education & Strategy

Timing the Trade

Both break outs and a break downs need to have a couple things happen before it is considered a confirmed break out or break down by technical definition!  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.

View more education articles »