Bears want to savage KB Home

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Yesterday's non-action by the Federal Reserve has the bears targeting builders such as KB Home.

optionMONSTER's Depth Charge tracking system detected short-term put buying in the Los Angeles-based company yesterday as some 4,200 Weekly 18 contracts were bought for $0.65. Those puts expire at the end of tomorrow's session, so traders are clearly looking for a selloff sooner rather than later.

KBH continued falling, and the paper hit again. This time traders sold all the 18s for $0.88 to $0.93 and rolled their position to the 17.50s, which were bought for $0.50. The size of the position was increased to 6,600 contracts.

Puts lock in the price where shares can be sold, which gives them an inverse correlation to the stock price. The recent activity is especially bearish because traders are using in-the-money strikes, which provide significant leverage. (See our Education section)

KBH is down 2.17 percent to $17.11 in afternoon trading. Homebuilders have struggled in the last six months as higher interest rates have raised fears about the housing market. The Federal Reserve's announcement yesterday afternoon added fuel to that fire because central bankers removed language supporting easy-money policies.

Total option volume is triple the daily average so far today, according to the Depth Charge. Puts dominate the activity, outnumbering calls by a bearish 6-to-1 ratio.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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This article appears in: Investing , Options

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