Calls pile up as housing names rally
The bulls piled into homebuilders and related stocks on Friday,
triggering a flurry of upside option activity.
Mohawk Industries, a maker of flooring products, hit shortly after the open as investors snapped up the November 115 calls, most of which priced for $9.85. More than 2,400 of the options traded against previous open interest of just 195 contracts, indicating that new positions were initiated. MHK rose 3.58 percent to $121.38.
Such long calls lock in the price where shares can be purchased, letting investors cheaply position for upside and control the amount of money that can be lost to the downside. They can also generate significant leverage when a stock goes up. (See our Education section)
Less than an hour later, lumber company Weyerhaeuser's October 30 calls traded more than 5,000 contracts, most of which priced for $0.25. Upside activity followed in cement giant Cemex, with almost 7,000 October 11 calls going for $0.63 to $0.68. WY rose 2.7 percent to $28.51, and CX advanced 2.16 percent to $11.33.
Investors targeted home-improvement company Lowe's in another transaction. optionMONSTER's Heat Seeker tracking system showed the purchase of 5,100 September Weekly 46 calls expiring this Friday for $0.47 and the sale of an equal number of Weekly 47 calls for $0.12. The strategy will control a move between the two strike prices for just $0.35, implying profit of almost 200 percent on a close above $47 five days from now. LOW fell 0.57 percent to $45.60.
Finally, after nibbling around the edges of actual homebuilders, traders targeted KB Home about halfway through the morning. This time they wanted a little more time and amassed more than 5,500 January 16 calls, with the biggest block fetching $2.26. KBH ended the session up 2.14 percent to $16.24.
(Versions of this post appeared on InsideOptions Pro on Friday.)