Options Trader Friday Update: CTX, DHI, XHB, XLI

Includes: CTX, DHI, XHB, XLI
by: Interactive Brokers

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. (NYSE: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 (NYSEARCA:XHB) – Shares of the ETF are currently off by about 1.5% to $11.54 as the broader market exhales after the recent rally. Option traders targeted XHB early this morning and were seen following the general pessimistic trend on housing. In the May contract, 1,300 protective puts were purchased at the 10 strike price for 55 cents apiece. This indicates that investors see the opportunity to profit from downward movement in shares beginning at the breakeven point of $9.45. Potentially even more bearish was a trade involving 10,000 puts at the May 8.0 strike price for 17 cents per contract. All 10,000 lots traded to the middle of the market making it difficult to determine the direction of the trade. If they were sold this trader is particularly pessimistic as he would expect profits to amass starting at $7.83, a price which is 12 cents below the 52-week low of $7.95. Finally, one investor was able to bank profits when he closed a long position in the April contract. Back on March 23rd, this individual purchased about 20,000 calls for 41 cents each at the April 11 strike. Today, he was able to pocket profits of 49 cents per contract by selling those same 20,000 in-the-money calls for 90 cents each.

Industrial Select Sector SPDR (NYSEARCA:XLI) – Earlier in the week we noted heavy activity in the industrials ETF as a bull rolled a successful April expiration trade higher, banking profits along the way. Today volume of 16,000 lots has appeared on the bear side of the fence as investors digest an interesting week’s worth of news. With equities lower, shares in the industrials ETF are lower by 1.1% at $19.42. Investors paid around 70 cents as they bought put options at the 19.0 strike securing selling rights in the event of further fallout. We’re unsure whether this is the work of bulls wary of the strength and fervor of the rally or whether the bears are back in town.