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April 3, 2014  Thu 4:14 AM CT

PHM: SEE CHART GET CHAIN FIND STRATEGIES
PulteGroup is trying to recover from a sharp drop, and one trader apparently believes that the homebuilder will at least hold current levels.

optionMONSTER's tracking systems detected the sale of 2,500 July 19 puts in one print for the bid price of $1.01 yesterday. This is a new position, as the volume was above the strike's open interest before the trade appeared.

The put seller will keep the $1.01 credit as profit if PHM stays above $19 through expiration in mid-July. They trader will be on the hook to buy shares if they fall below that level, but that could be part of the strategy. Investors sometimes sell puts this way in hopes of picking up shares at an effective discount on a pullback. (See our Education section)

PHM rose 0.31 percent yesterday to close at $19.69. The stock hit a recent high of $21.26 on Feb. 26 but fell to $18.39 in the next month before bouncing this week.

PulteGroup was hammered along with other builders last month when Janet Yellen raised the prospect of higher interest rates in her first press conference as Federal Reserve chair. The stocks are now trying to pick up where they left off before that last leg down.
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Education & Strategy

Sweet Spot Exceptions

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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