Options Trading News

November 15, 2013  Fri 5:14 AM CT

Dovish remarks by Federal Reserve Vice Chair Janet Yellen before the Senate yesterday fueled a bullish feeding frenzy in homebuilder stocks.

optionMONSTER's Heat Seeker system showed that the upside activity began early in Lennar as traders piled into the November 35 calls expiring today. They initially paid as a little as $0.05, but then the stock started moving and those calls exploded higher. At one point by early afternoon they fetched as much as $0.40--a gain of 700 percent in a matter of hours.

Long calls lock in the price where a stock can be purchased. They're usually really cheap compared with the underlying shares, which is why they can generate such extreme leverage. (See our Education section.)

Almost 9,000 of the November 35s were bought against open interest of 4,811 contracts.

LEN rose 2.67 percent to $34.22, but at one point was up almost 5 percent. The entire homebuilding group enjoyed a huge run between late 2011 and early 2013 but has paused since May. Higher interest rates, which can hurt their business, have contributed to the weakness.

It's "imperative that we do what we can to promote" economic growth, Yellen told lawmakers on yesterday. That was interpreted as a sign that the next head of the Federal Reserve will continue buying Treasury bonds to keep interest rates low.

Similar upside activity occurred in D.R. Horton, with buyers gobbling up 19,000 November 20 calls for $0.03 to $0.16. PulteGroup's November 17.50 calls also traded more than 3,500 times for $0.06 to $0.51. DHI rose 2.83 percent to $19.59, and PHM climbed 4.87 percent to $17.86.
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