TRADE OF THE DAY: BETTING ON A 12.5% RISE IN HOMEBUILDERS
From the Interactive Brokers options desk:
XHB – SPDR Homebuilders ETF – Bullish bets have been placed on the homebuilders exchange-traded fund today despite the 0.5% decline in shares to $16.00. It appears some 16,000 put options were sold for 17 cents apiece at the October 14 strike for an average premium of 17 cents apiece spread in order to finance the purchase of 16,000 calls at the higher October 18 strike for about 13 cents per contract. Perhaps traders employing the bullish risk reversal strategy are expecting the XHB to rally on positive August existing home sales due out Thursday and on August new home sales expected out this Friday. The reversal results in a net credit of 4 pennies per contract for investors. Traders retain the 4 cent credit as long as shares of the XHB remain higher than $14.00 by expiration next month. Additional profits are available in the event of a significant 12.5% rally through $18.00. Finally, it seems less optimistic investors paid 48 cents premium to purchase about 4,100 puts at the October 15 strike. If shares of the ETF fall on disappointing housing data, put buyers are positioned to profit beneath the breakeven price of $14.52.
Source: IB
