Interest-rate worries have been hammering mortgage REITs, but
some traders are looking for a bounce.
The activity mostly focuses on companies that are structured as
real-estate investment trusts but own mortgages rather than
physical property. They tend to leverage their assets and pay big
dividends, which makes them sensitive to interest rates.
Rising Treasury yields and talk of less quantitative easing by the
Federal Reserve have triggered selling in the industry, and names
including CYS Investments and Armour Residential are down more than
4 percent today.
But now optionMONSTER's Heat Seeker trade scanner shows the
sentiment turning bullish. The first big blocks crossed in ARR,
the July 5 calls for $0.25 to $0.29 and the October 5 calls for
$0.36. Each strike saw more than 5,000 changed hands in volume that
was above the previous open interest, indicating that new money was
put to work.
Minutes later, the Heat Seeker detected the purchase of 4,500 July
10 calls in CYS for $0.65 and the sale of an equal number of July
12s for $0.05. There was barely any open interest before that
Calls lock in the price where shares can be bought, which gives
them potentially significant leverage to a rally. In the case of
CYS, traders are using a
that will pay $2 if the stock climbs and $12. They paid $0.60,
implying a potential profit of 233 percent if that move occurs.
ARR is down 4.36 percent to $5.05 in afternoon trading after
hitting an all-time low of $4.82 earlier in the session. CYS is off
2.59 percent to $10.51.
Our scanners also picked up heavy activity in the iShares Dow Jones
Real Estate exchange-traded fund, which offers broad exposure to
the REIT sector. It's been falling sharply as well, and came into
the session down 5 percent in the preceding week.
Today, however, traders sold more than 20,000 September 68 puts for
$2.17, betting that the IYR will remain above the strike price. The
June 71 puts and June 70s were also sold against open interest.
IYR is down 2.43 percent to $69.90. Total option volume in the fund
is quadruple the daily average.
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