Tuesday, August 24, 2010

DR Horton (DHI) - More Sep Vol Selling in the Home Builders

DHI is trading $10.14, up 1.6% with IV30™ up 3.8%. The LIVEVOL™ Pro Summary is below.

On 8-18-2010 I wrote this: S&P Homebuilders (XHB) - Getting Long Again; But Selling the Vol in Sep

This trade follows in that same line. I also see front month vol sales in the puts in: HSY, WAG, GME... Feels like people are selling elevated vol, but only in Sep - no real stand taken further out.

The company has traded over 18,000 options hour on total daily average option volume of just 5,929. The largest trade, accounting for over 13,000 contracts was a Sep 10 straddle sale 1 x 2 (big on the puts); no stock. I got this color from Mike Bristow, head of Vtrader Group, broker side. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates that the calls are mostly opening (compare OI to trade size). The put OI is large and is short best I can tell. This should increase the OI.

The Skew Tab snap (click to enlarge) illustrates the vols by strike by month.

Other than the 11 line, the Sep 10 is the lowest vol in any of the strikes for the front two months (I've highlighted it in the skew chart). The vol sale today was ~40 on HV10™ of 44, HV20™ of 44 and HV30™ of 45. Hmm...

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

We can see the stock has dropped hard off it's April/May highs of ~15.50 down now to the $10 level. The IV30™ (red line) is right on top of the HV20™ (blue line). The stock has found a steady state at this price for the last two months. The trade today bets on more of the same for the next month.

Trade Stats
Sell 4500 DHI Sep 10 calls @ $0.55
Sell 9000 DHI Sep 10 puts @ $0.30
Net credit = $517,500
At expo. this wins if the stock is in [$9.43,$11.15]. The trade is also short $13,500/vol of vega. So for every 1 point change in vol, the position value changes by $13,500. Keep in mind vega is a function, not a number, so it's not linear.

This is trade analysis, not a recommendation.

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