15:30:00 OPTIONS REPORT: Builder Bulls Charge Past Poor Housing Data
By Brendan Conway
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Options traders looked past a glum reading on home
sales as they took bullish positions on a number of homebuilder stocks.
One of the companies in focus was Beazer Homes USA Inc., whose battered
shares have fallen by about half since May. Rebound-minded traders scooped up
more than 4,000 $5 November call options that make money if the stock gains at
least 41% in the next three months. Beazer's shares gained as much as 17 cents,
or 4.9%, to $3.64.
The same investors also appeared to sell a similar number of $2.50 November
Beazer puts in a bullish "risk reversal" trade. Selling puts allows traders to
collect a premium on the view that the stock is unlikely to fall below certain
levels, and is worth owning if it does.
Homebuilder stocks were broadly higher Wednesday, shrugging off data showing
new-home sales dropped to a record low in July. A surprise profit by luxury
homebuilder Toll Brothers Inc. helped. So did the feeling among investors that
bad data like Wednesday's can provide a good opportunity to buy.
D.R. Horton Inc. was another homebuilder of interest. Traders showed up for
September $11 calls on a day that shares in the builder gained 45 cents, or
4.5%, to $10.41. At a cost of 20 cents, the contracts make money if D.R.
Horton's stock adds at least 7.6% by the middle of next month.
Bullish-looking trades also crossed the tape in Lennar Corp. and the SPDR S&PHomebuilders exchange-traded fund, also called the XHB. As Lennar's stock rose
41 cents, or 3.1%, to $13.31, trading was notable in October $14 call options
that make money if the shares gain more than 11% in the next two months.
"Perhaps the message is to play a move higher in the stocks through buying
slightly out-of-the-money calls," Lillian Seidman-Davis, chief options
strategist at Miller Tabak & Co., said.
The one big exception Wednesday: Toll Brothers. Here, traders in the high-end
builders' options appeared to sell large batches of $17 call options. Traders
often sell calls when they don't expect a stock will rise appreciably higher.
For shareholders, selling calls can be an "overwrite" strategy that generates
income and sets up a potential exit from the stock.
The investors appeared to collect a premium of nearly 5% of the shares'
value. Later in the session, Toll Brothers' stock rose as much as $1.06, or
6.5%, to $17.25. That jump in the shares means the calls were "in the money"
after just a few hours, meaning sellers could be required to hand over shares.
-By Brendan Conway, Dow Jones Newswires; (212) 416-2670;
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