KB Home Options Heat Up

By Jud Pyle, CFA, chief investment strategist for the Options News Network

KB Home (KBH Quote) has not announced notable news all week, but at least one investor could be interpreting that as a good reason to sell puts and calls for minimal movement in the stock throughout the next month.

More than 18,000 at-the-money December 14 puts have traded so far today vs. open interest of just 551 contracts, indicating investors traded these options to open. Around 10:45 a.m. EST, we saw two blocks totaling 13,000 contracts trade for 90 cents each (the bid price). These puts are currently trading up 15 cents with a 45-delta. The options are down more than the delta would suggest, meaning the majority of this action happened on the sell side.

Today's selling action has brought implied volatility of the December 14-strike calls down to 55.

Though investors should not interpret call-selling as a reason to empty their stash of KBH shares, it's interesting that the market expects volatility to continue coming in. The options-selling action we're seeing in the homebuilders is lowering implied volatility as investors are betting that names such as KBH won't see much movement going into the holidays, despite the housing data coming up next week.

Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.