DHI – D.R. Horton, Inc. – Investors are constructing bullish positions on D.R. Horton this afternoon with shares of the homebuilding company trading higher by more than 3.4% to stand at $11.22 just after 1:15 pm (ET). Perhaps optimism on DHI was bolstered by the 23.6% jump in sales of new single-family homes in June reported by the Commerce Department this morning. The homebuilding firm is slated to report second-quarter earnings ahead of the opening bell on August 3. Options investors expecting shares to rally higher ahead of September expiration purchased approximately 1,000 calls at the September $13 strike for an average premium of $0.17 each. Call buyers at this strike make money as long as the price of the underlying stock surges 17.35% over the current price of $11.22 to surpass the average breakeven point to the upside at $13.17 by expiration day in September. Other optimists sold some 10,600 puts at the September $11 strike to take in an average premium of $0.62 apiece. Put sellers keep the full premium received on the transaction as long as DHI’s shares exceed $11.00 through expiration day. Investors short the puts may have shares of the underlying stock put to them at an effective price of $10.38 each in the event the put options land in-the-money at expiration. Finally, it looks like one trader was properly positioned to benefit from the current rally. It appears the investor originally sold roughly 2,500 puts at the August $9.0 strike for an average premium of $0.34 a-pop back on July 7, 2010. Today it seems the trader purchased-to-close the short 2,500-lot stance at a premium of just $0.09 each. In this scenario, the investor responsible for the trade pockets net profits of $0.25 per contract by closing out the short position.
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Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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