By David Russell
Tuesday's Case-Shiller index showed signs home prices are stabilizing, and a bullish options trade followed.
An investor purchased about 4,460 April 12.50 calls on the iShares Dow Jones U.S. Home Construction Index (NYSEARCA:ITB), an exchange traded fund that focuses on homebuilders and related companies. The trade was executed in several pieces for $2.35 and $2.40 and came against no existing open interest in the strike.
ITB rose 2.7 percent to $13.31 Tuesday and is up 16 percent in the last month. The Case-Shiller index of home prices showed broad gains in June as the number of cities showing improvements more than doubled, which is fueling optimism home construction may be revived.
ITB needs to climb 12 percent by expiration for the calls to turn a profit. The fund's largest holdings include D.R. Horton, NVR, and Toll Brothers.
The activity pushed options volume in ITB to 11 times greater than average, and calls exceeded puts by 8 to 1.
(Chart courtesy of tradeMONSTER)