Call Traders Take Action Following Lennar Corporation (LEN) Earnings Beat

Option traders are likely happy about Lennar Corporation's (NYSE:LEN) earnings report

Josh Selway
Mar 29, 2016 at 10:57 AM
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This could be a good day for Lennar Corporation (NYSE:LEN) options traders. The homebuilder is trading higher -- and its stock volume currently lands in the 100th annual percentile -- following an earnings beat, which seemingly plays right into speculators' hands. For instance, the stock's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) comes in at 1.75, meaning almost two long calls have been opened for every long put over the past two weeks. 

On a closer look, it appears traders were targeting the $47 level in the front-month April series leading up to the quarterly event. The April 47 call has added almost 5,600 positions over the past two weeks, while the next closest position has added fewer than 2,000. Based on data from the major exchanges, traders have been initiating long positions here, betting on LEN to top $47 by the close on Friday, April 15, when the contracts expire. 

Today, LEN call options are crossing at eight times the average intraday amount, with volume arriving in the 98th annual percentile. Sure enough, the April 47 is one of the most popular options -- though it's unclear whether these positions are being opened or closed.

While pre-earnings call traders may have anticipated today's bounce, they could have had an ulterior motive, as well. Short interest accounts for roughly 12% of LEN's float -- having exploded 20% during the latest reporting period -- and it would take these short sellers more than nine sessions to cover their positions, at average daily volumes. It's possible, then, that short sellers were hedging their positions with call options ahead of the company's fiscal first-quarter earnings report. 

At last check, Lennar Corporation (NYSE:LEN) was up 1.6% at $47.47, after the homebuilder's quarterly earnings and revenue beat Wall Street's expectations -- following the example of this sector peer. Chief Executive Stuart Miller added, "We continue to believe that the housing market is continuing its slow and steady recovery." However, the shares' rally lost steam earlier just below $49 -- site of both their 200-day moving average and year-to-date breakeven level

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