Markets

D.R. Horton draws cautious trade

Traders are hedging their bets in DR Horton as the homebuilder breaks down from long-term highs.

optionMONSTER's Depth Charge monitoring program detected the purchase of 5,000 November 26 puts for $0.63. Volume dwarfed open interest of 742 contracts, which indicates new money was put to work.

Puts lock in the price where a stock can be sold, which lets investors hedge long positions or speculate on a drop. Their cheap cost helps manage risk and creates the potential for significant leverage if shares decline. (See our Education section)

DHI rose 0.75 percent to $29.58 yesterday. Earnings and revenue beat expectations in late July, allowing the company to recover quickly from the August selloff.

It traded up to nine-year high of $33.06 by the middle of last month, only to pull back along with the broader market. The stock is also back below its 50-day moving average, which could make some chart watchers fear continued selling downside.

Total option volume was twice the daily average, with puts 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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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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