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October 24, 2012  Wed 2:14 AM CT

PHM: SEE CHART GET CHAIN FIND STRATEGIES
PulteGroup has risen to five-year highs, and one large trader apparently believes that the homebuilder will hold those gains.

Nearly 13,000 November 17 puts were sold yesterday, including a single print of 10,900 that went for $1.01, according to optionMONSTER's tracking systems. The volume was more than quadruple the open interest of 3,111 in the strike at the beginning of the day, so these are new positions.

PHM fell 2.7 percent to $17.31 yesterday. The stock gapped higher with other homebuilders early last week on strong housing numbers and is trading at its highest levels since September 2007. The company is scheduled to report third-quarter earnings before the market opens tomorrow.

Yesterday's put sellers are looking for the stock to stay above the $17 strike price upon expiration in mid-November. The traders face the prospect of having to buy shares if PHM is below that level, but the purchase price would be $15.99 after the credit from the put sale is factored in. (See our Education section)

The trading pushed overall option volume in the name to more than 4 times its daily average in the last month.
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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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