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How the bulls are playing housing

Housing is in the news today, and the bulls are looking for upside in the sector.

optionMONSTER's Heat Seeker monitoring program detected the purchase of some 5,400 July 27 calls in the iShares U.S. Home Construction Fund yesterday, most of which priced for $1.75 to $1.80. Volume was almost 7 times the previous open interest in the strike, an indication new money was put to work.

Long calls lock in the price where investors can buy stock, allowing them to position for a rally while risking only a small fraction of the capital needed to own shares. The cheap cost can also generate significant leverage if a rally ensues. (See our Education section)

The activity comes before events like weekly mortgage applications at 7 a.m. ET, FHFA's price index at 9 a.m. ET, and existing-home sales at 10 a.m. ET. Homebuilder D.R. Horton and Owens Corning, the maker of Pink insulation, are also scheduled to report earnings in the pre-market.

The ITB rose 1.42 percent to $27.87 yesterday. It's up 8 percent since the start of January--more than triple the broader market's gain--and has broken out to levels last seen during the sub-prime meltdown in 2007. In addition to DHI, the fund's largest holdings include Lennar and PulteGroup, whose quarterly results are due tomorrow. ( DHI , PHM , and OC have seen bullish call buying in the last week.)

Total option volume in the ITB was 10 times greater than average in the session. Calls outnumbered puts by a bullish 17-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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