Markets

PulteGroup receives vote of confidence

A large PulteGroup trader apparently believes that the homebuilder is on solid ground.

optionMONSTER's tracking systems detected the sale of about 19,000 February 6 puts against open interest of just 9 contracts. Premiums declined from $0.50 to $0.47 as the trades crossed, which shows the strong selling pressure.

PHMis up 0.49 percent to $6.11 in afternoon trading and has risen 47 percent in the last three months. The stock has been ripping higher amid improved sentiment in the homebuilding sector. It's been stuck at its 200-day average since the beginning of December, which could be leading some chart watchers to believe that it will continue to move sideways in the near term.

Selling puts may make sense in that situation because it lets the investor make money from the stock without spending a dollar to get long. If PHM closes below $6 on expiration, the trader will have to buy shares for that price, but including the credits received the entry price would be about $5.50.

The strategy saves them from having to pick an entry point and ensures they make some money if PHM breaks resistance and continues to rally. (See related column by Chris McKhann)

Overall option volume in PHM is 5 times greater than average so far today.

A block of 10,995 February 20 puts was also sold on Toll Brothers, another homebuilder, but volume was below open interest in that trade.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


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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