Housing is grabbing attention today, and one investor is playing
the trend with a highly leveraged trade in Home Depot.
optionMONSTER's Heat Seeker monitoring system showed bullish
activity in names such as
shortly after the opening bell. Then some large blocks hit in HD
about halfway through the morning.
An even 5,000 February 77.50 calls were
for $3.93, and an equal number of February 77.50 puts were
for $1.52. Volume surpassed open interest at each strike,
indicating that new positions were initiated.
The trade cost $2.41 and will behave almost identically to owning
shares in the home-improvement retailer. The main difference is
that the trader paid a fraction of the stock price up-front,
resulting in potentially massive leverage. For instance, a 10
percent move in underlying equity will more than quadruple the
HD is down fractionally to $79.80 in afternoon trading. It doubled
between late 2011 and early 2013 along with other housing-related
stocks and has been consolidating since. But the shares have been
making higher lows above their 200-day moving average since
September, which could make some traders think that it's ready to
A block of 2,000 February 67.50 puts was also sold for $0.22 around
the same time as the bullish synthetic trade. While it isn't clear
the transactions were related, the put selling also reflects
positive sentiment toward the name.
Housing-related stocks have lagged the broader market in the last
six months as investors worry that an improving economy will push
up interest rates. Those fears increased with strong manufacturing
and employment data last week, but the group has nonetheless been
swimming upstream since the summer. (See our
market scanner to analyze the performance of more than 100 industry
groups over different time periods.)
Total option volume in HD is about 50 percent greater than average
so far today.
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