Centex Corporation (CTX) – Shares of the residential construction company had rallied about 5% in pre-market trading this morning, but are currently down by 1% to stand at $8.99. Option trades on the company suggest that investors are over the good news released recently regarding the rise in February housing starts and the boost in existing home sales. Traders are once again proceeding with caution on the housing market. One investor picked up 6,000 puts at the April 7.5 for 40 cents apiece and funded the purchase by selling 3,000 calls at the May 10 strike for 1.00 per contract. The investor pockets a 20 cent credit on the trade and establishes downside protection should shares fall beneath $7.50 by expiration. The 20 cent credit is retained in exchange for bearing the risk that shares rebound (above $10.00) as we head into May where this investor is now short 3,000 calls.
D.R. Horton, Inc. (DHI) – The homebuilding company’s shares had dipped slightly at the opening bell, however have since rallied more than 2% to $11.17. A nearly identical trade to the one observed on Centex was established in the April and May contracts for DHI. Purchasing 6,000 puts at the April 10 strike price for 75 cents apiece and selling 3,000 calls at the May 12.5 strike for 90 cents each indicates that this investor is looking for shares to decline. This investor does not receive a credit for bearing the risk that shares rebound but instead was obliged to shell out 60 cents to initiate the trade. Shares would need to fall by 16% from the current share price in order to breach the breakeven point on the downside at $9.40 by expiration.
Homebuilders Index Fund SPDR (XHB) – Shares of the ETF are currently off by about
