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September 6, 2013  Fri 12:21 PM CT

MHK: SEE CHART GET CHAIN FIND STRATEGIES
Housing is hot today, and the bulls are piling into Mohawk Industries.

optionMONSTER's Heat Seeker monitoring system detected the purchase of 2,400 November 115 calls, most of which priced for $9.85. Volume was more than 12 times previous open interest at the strike, indicating that new money was put to work on the long side.

These long calls lock in the price where shares can be purchased in the company, which makes carpet, tiling, and other flooring products. That gives them potentially significant leverage to gains in the stock, letting investors position for a rally at a fraction of the cost. (See our Education section for more on how to take risks more safely with options.)

MHK rose 4.61 percent to $122.59 in afternoon trading. It's up along with other housing-related stocks after a weak non-farm payroll report for August caused interest rates to fall. If they continue to decline, it would likely buoy sentiment toward the industry.

In addition to the macro story, MHK was already in a strong uptrend. It gapped to a new all-time high over $130 last month following a strong earnings report, and is now rebounding after pulling back to its old peaks around $120. That could make some chart watchers think it will continue to advance.

Total option volume is nearly 17 times greater than average so far today, according to the Heat Seeker. Calls outnumber puts by 6 to 1.
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As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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