By Pete Najarian, co-founder of OptionMonster
NEW YORK -- Homebuilders were among the few bright spots in yesterday's market selloff, and traders started early by focusing on
OptionMonster's real-time tracking systems detected heavy buying in the November 21 calls as premiums almost doubled $0.51 to $1. More than 7,100 contracts traded in volume well above the strike's previous open interest of just 477 contacts, clearly indicating that these are new positions.
These long calls lock in the price where traders can buy the stock no matter how far it might rise through mid-November. They have a few months to perform and could be sold earlier at a profit if premiums rise with a rally before then, but they could expire worthless if shares remain below $21.
After hitting its intraday low of $17.59 right out of the gate, D.R. Horton ended yesterday's session up 5.69% to $19.12 and even tacked on another $0.13 in after-hours trading.
Only four months ago D.R. Horton hit a six-year high of $27.75 as the housing market showed increasing signs of recovery. Homebuilders have fallen off a cliff since then, but our researchLAB service indicated their outperformance yesterday.
Total option volume in the homebuilder topped 28,600 contracts yesterday, almost quadruple its daily average for the last month. Overall calls outpaced puts by more than 2 to 1.
Najarian has no positions in DHI.