Options Trader Places $1.4M Bullish Bet on the Housing Market

Options traders are betting on extended upside for home construction ETF ITB

Mar 17, 2017 at 3:00 PM
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The iShares U.S. Home Construction ETF (ITB) surged to its highest point in almost 10 years yesterday, thanks to strong data from the housing sector. The exchange-traded fund (ETF) has been rising fast since Donald Trump's election win, gaining over 29% since its November low to trade at $32.40, and ITB options traders have been betting on more upside. In fact, the ETF has an astonishing 10-day call/put volume ratio of 29.83 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- just 2 percentage points from a 52-week bullish extreme -- and call open interest is now at its highest point in at least a year. 

Looking closer, there appeared to be strong bullish activity in ITB's options pits amid yesterday's rally. Trade-Alert highlights a 20,000-contract block of January 2018 38-strike calls that was purchased for 70 cents per contract, and the huge uptick in open interest overnight confirms the contracts were opened. This would put the trader's initial cash outlay at $1.4 million (number of contracts * price paid per contract * 100 shares per contract), and suggests confidence in the home construction ETF rising another 19% -- and topping $38.70 (strike plus premium paid) -- in the months ahead. 

In today's trading, calls are again seeing heavy attention, but this time it's short-term speculators taking action. It appears one trader initiated a calendar spread involving 1,000-contract blocks of the weekly 3/31 31-strike calls and the weekly 4/7 33-strike calls. It's a good time to buy short-term premium, based on ITB's Schaeffer's Volatility Index (SVI) of 19% -- ranking in the bottom quartile of its annual range. 

Turning back to the chart for iShares U.S. Home Construction ETF (ITB), the shares are sitting just below the $33 level, which coincides with a 61.8% Fibonacci retracement from its 2006 all-time highs and record lows from 2009. What's more, the ETF is also technically overbought, according to ITB's 14-day Relative Strength Index (RSI) of 75. 

home construction etf

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