Housing data brings out the bulls


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Today's housing data was strong, and the bullish paper is flying.

optionMONSTER's Heat Seeker monitoring system detected unusual activity in Toll Brothers, D.R. Horton, and KB Home late this morning. All the trades occurred around the same time and in the same October expiration, which suggests that it may have been the work of a single large investor.

The TOL options hit first as 5,000 October 37 calls were purchased for $0.75, followed by 6,500 DHI October 23s bought for $0.46. A few minutes later, almost 8,600 October 19 calls traded in KBH for $0.35 to $0.37. Volume exceeded open interest across the board, which indicates new money was put to work on the long side.

Long calls lock in the price where investors can buy the stocks, ensuring they won't miss a rally. They can generate significant leverage if shares move in the right direction but can also quickly lose value on a pullback. (See our Education section)

All three homebuilders are rising in afternoon trading, with TOL up 2.49 percent to $35.43, DHI up 3.03 percent to $21.77, and KBH up 3.05 percent to $17.73. Total option volume is more than twice the daily average, with calls outnumbering puts by more than 7 to 1, in all the names.

The group has been fighting back from a late-July slide and is hot today after July housing starts and building permits beat forecasts. Housing-related retailer Home Depot also blasted to new all-time highs after reporting strong quarterly sales and profit. A bullish trade by optionMONSTER co-founders Pete and Jon Najarian in our Advantage Point newsletter has doubled on the move.

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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