Options Trading News

August 16, 2013  Fri 4:45 AM CT

One trader turned bullish on lumber company Weyerhaeuser yesterday as the homebuilder stocks bounced.

optionMONSTER's tracking systems detected the purchase of 1,000 October 27 calls for $1.05 and, at the same second, the sale of 1,500 October 25 puts for $0.50. Volume was above the previous open interest in the puts, indicating that this is a new combination spread.

The strategy is highly bullish because a rally in the stock will raise the value of the calls while the puts dwindle. But the opposite will occur if the stock falls, and the trader will be on the hook to buy shares if they are below $25.

This particular combination trade is unusual because it uses more puts than calls. The trader may have done that to get more credit from the put sale and further offset the cost of the calls purchased. (See our Education section)

WY fell 2.23 percent to close at $27.17 yesterday, in the middle of the session's tight range, after raising its third-quarter dividend by 10 percent a day earlier. Shares have been trending lower since the company reported second-quarter results on July 26, but yesterday's option trader may be betting that it will rebound if homebuilders can reverse their months-long slide.

Total option volume in the name was twice its daily average for the last month.
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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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