Options Trading News

May 9, 2014  Fri 12:20 PM CT

PHH has taken a beating, and now the bulls are stepping in.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 4,000 August 25 calls for $0.45 and the sale of an equal number of August 20 puts for $0.65 today. That translates into a credit of $0.20.

The position is highly leveraged to a rally because higher prices for PHH will inflate the value of the calls they own and diminish the puts they sold short. The opposite would occur if the stock falls, so the trade is similar to owning shares. The main difference is that it will track movements in the underlying shares less closely as time passes and become worthless if the stock remains between $20 and $25 by the summer. (See our Education section)

PHH is up 1.52 percent to $21.98 in afternoon trading. The provider of mortgage services dropped 6 percent yesterday after earnings and revenue missed expectations, but Sterne Agee upgraded the shares to "buy" from "hold" this morning. The price target was lifted to $28 from $25.

The company also trades for less than book value, and management is considering actions to separate or divest its business lines.

Total option volume is 15 times greater than average in the name, according to the Heat Seeker, with that bullish trade accounting for almost all the activity.
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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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