Shares of Meritage Homes Corp. (NYSE: MTH ) are on the decline during today's trading session, but the direction of heavy put activity suggests at least one investor expects further downside to be limited.
MTH is currently down nearly 4%, or roughly 91 cents, to $22.45 without any company-specific news on the wires. On April 28, the company announced earnings of eight cents per share. Given that the MTH is a homebuilder, the recent slide in the shares might just be due to concern that the recent rally from the $20 level is overdone if economic growth is not as strong as expected. The jobs number that we will get on Friday morning will give more insights into that as well. However, it looks like at least one investor took a moderately bullish stance on MTH and expects the stock to hold above $20 during the next several months.
By noon EST, more than 10,000 out-of-the-money ( OTM ) September 20 puts changed hands versus current open interest of 377 contracts, indicating the majority of this volume was initiated to open. Investors who sold these puts collected an average net credit of $1.53 per contract, which means the investor is calling for the stock to hit a floor around $18.40, or not drop more than 18% prior to September options expiration. If the stock stays higher than the breakeven price, put sellers could make a maximum gain of the premium received, or $1,538,800 for the entire 10,000 lot.
In terms of implied volatility, these options traded on roughly a 53 implied volatility. That compares to a realized volatility of 45 for the last three months. Should implied volatility decline prior to expiration, and the stock stays in the same place, this investor could decide to lock in a profit on the short puts by buying them back.
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Put-selling activity such as this is not a reason to turn bullish on MTH, but it's interesting that at least one investor is willing to bet that further slides in the shares, or increases in implied volatility in the name will be limited.