DHI - More Sep Vol Selling in the Home Builders

Discussion in 'Options' started by livevol_ophir, Aug 24, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    DHI is trading $10.14, up 1.6% with IV30&#8482 up 3.8%.

    <img src="http://3.bp.blogspot.com/_hMry1m7UF10/THQCqL3ABDI/AAAAAAAAET8/TfYSFwrcaMo/s1600/dhi_summary.gif">

    On 8-18-2010 I wrote this: <b><a href="http://livevol.blogspot.com/2010/08/xhb_18.html">S&P Homebuilders (XHB) - Getting Long Again; But Selling the Vol in Sep</a></b>

    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 (<a href="http://livevol.blogspot.com/2010/08/dhi.html">in the article)</a>.

    The Options Tab (<a href="http://livevol.blogspot.com/2010/08/dhi.html">in the article)</a>) 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 (<a href="http://livevol.blogspot.com/2010/08/dhi.html">in the article)</a>) 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&#8482 of 44, HV20&#8482 of 44 and HV30&#8482 of 45. Hmm...

    Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/08/dhi.html">in the article)</a>). The top portion is the stock price, the bottom is the vol (IV30&#8482 - red vs HV20&#8482 - blue). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 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&#8482 (red line) is right on top of the HV20&#8482 (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.

    <b>Trade Stats</b>
    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.

    Details, trades, prices, vols, skews, charts here:

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