Bearish Move in KB Home: Options

CHICAGO (TheStreet) -- At least one investor thinks the upward momentum in homebuilding stocks could be short-lived.

The stocks enjoyed some upward momentum Thursday on chatter that the home-buyer tax credit could be extended, with KB Home(KBH Quote) rising more than 5.5% on the day.

It's a different story today. By 2:30 pm, an investor had bought more than 15,000 Nov. 14/16 put spreads for about 75 cents each. Meanwhile, the stock itself was fractionally higher, up 30 cents so far today.

The KBH put-spread buyer sold the Nov. 14 options for about 50 cents each to help finance the purchase of the 16-strike puts for $1.25. The open interest of the Nov. 14 puts was a scant 389 contracts and the Nov. 16 puts were home to open interest of 3,577 contracts prior to today's trading.

Part of the tenuous homebuilder sector, KBH has been range-bound since April, bouncing between 13 and 19. In the past three weeks, the stock has lost about 25% of its value and at least one investor today is maintaining a bearish-to-neutral outlook on the shares despite yesterday's rally.

Investors could make a maximum of $1.25 on this trade, and the maximum loss is the cost of the spread (75 cents each). This maximum profit is achieved if KBH is trading at or below $14 at November options expiration six weeks from today.

Heavy put-buying action does not mean investors should run out and abandon their long positions in KBH. But keep in mind that at least one large investor is betting on continued downside from the declining shares.

-- Written by Jud Pyle in Chicago