S&P Homebuilders (XHB) - Getting Long Again; But Selling the Vol in Sep

Discussion in 'Options' started by livevol_ophir, Aug 18, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    XHB (S&P Homebuilders) is trading $14.91, up 2.9% with IV30&#8482 down 5.7%.

    <img src="http://3.bp.blogspot.com/_hMry1m7UF10/TGwo_lv-_GI/AAAAAAAAELs/Cc2IJXdSqoo/s1600/xhb_summary_8-18-2010.gif">

    I wrote about XHB on 8-3-2010. <b><a href="http://livevol.blogspot.com/2010/08/xhb.html">S&P Homebuilders (XHB) - Getting Bullish Housing</a></b>. The trade there was an accumulation of 80,000 Jan '11 17.5 calls. Today another 15,800 were bought; but another trade caught my attention as well.

    The trade there was an accumulation of 80,000 Jan '11 17.5 calls. Today another 15,800 were bought; but another trade caught my attention as well.

    The ETF has traded over 73,000 options on total daily average option volume of just 9,113. 40,00 contracts went up in a single trade; a Sep 14/16 strangle sale @ $0.52, 20,000x. The vol is down today on that selling. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/08/xhb_18.html">in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/08/xhb_18.html">in the article</a>) illustrates that the OI on both lines is >> then trade volume. From what I can tell, the puts have short interest (OI will grow with this trade), the calls have long interest (OI will shrink with this trade).

    This trade, if held to Sep expo., makes money if XHB is in ($13.47,$16.53). The 52 wk range for XHB is [$13.50, $20.00]. Since this is Homebuilders, there probably isn't a lot of news that could surprise and push the ETF out of the "expected range." ... Umm, no... Please read as facetious.

    The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/08/xhb_18.html">in the article</a>) illustrates the vols by strike by month.

    <img src="http://1.bp.blogspot.com/_hMry1m7UF10/TGwpA2VD6qI/AAAAAAAAEMM/vI45Qz6_Jjc/s1600/xhb_skew_8-18-2010.gif">

    The Sep vol in those strikes is actually below Dec.

    Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/08/xhb_18.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 when XHB hit its peak in the end of April/start of May period. Recently we can see how the ETF has just sort bounced around in the range between the strikes that were sold. Having said that, the IV30&#8482 and HV20&#8482 lie on top of each other. Longer term, the IV180&#8482 is ~42 vs HV180&#8482 of 32. This trade sells 37 vol. I like this small just b/c of the vol difference in the longer term HV to the sale. Having said that, this doesn't automatically scream great trade to me at a glance. Especially given the recent uncertainty in everything that is the US economy (like housing).

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here:
  2. XHB and OIH are highly depressed ETFs. They're bound to turn up eventually. [​IMG]