The homebuilder sector is seeing heavy put action today, and one trader may be playing one name off another.
Earlier today we reported some put buying in D.R. Horton on InsideOptions Pro, and since then our systems have detected action in two more homebuilders. A block of 11,901 KB Home May 9 puts sold for the bid price of $0.76. The volume was 3 times the previous open interest.
Shortly after, a block of 8,083 Lennar May 26 puts were bought for $1.11, above the ask price. This too was well above the existing open interest.
This institutional-size interest in homebuilder puts could be a coincidence--but, as frequent readers know well, I don't believe that there are any random coincidences in trading. So both trades could be part of a relative-value strategy, selling the puts in KBH to purchase the LEN contracts. (See our Education section)
Relative-value trades are very popular with hedge funds. The beauty of this type of play is that it can potentially profit regardless of overall market action.
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