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Put volume is once again heavy in the SPDR S&P Homebuilders (ETF) (NYSE:XHB - 25.51). At last check of the exchanges, more than 101,000 put contracts had changed hands, running about 15 times heavier than typical put volume and exceeding call volume by almost 8 times.
Much of this volume comes as investors look to be rolling a 42,000-contract block from the January 20 put up to the January 22 strike, selling out of the lower-strike contracts and potentially buying to open the 22-strike contracts.
Another interesting trade in the housing ETF today is a short straddle using the November 26-strike calls and puts. Evidently, one trader sold 10,000 of the puts near the bid price at $1.19 per share and bought 10,000 of the calls at the $0.84 bid price. If the XHB is trading right at the 26 strike when these options expire, the trader keeps the net credit of $2.03 as profit.
In fact, if the XHB is trading anywhere between $23.97 and $28.03 -- the strike price minus and plus the credit, respectively -- the straddle trade will be profitable. Outside of these levels, however, losses can be substantial if the ETF drops and unlimited if the security rallies.
With the ETF perched at $25.51, this strategy is a neutral one that bets the ETF will stay near its current level for the next two months. The XHB has nearly doubled in value over the past 52 weeks but is lower today despite a positive earnings report from sector heavyweight Lennar Corporation (NYSE:LEN - 36.56).
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