Options Intelligence Report: SPDR S&P Homebuilders ETF (XHB), Meritage Home Corp. (MTH) & American International Group, Inc. (AIG)
Bears Bombard Homebuilders ETF
XHB ñ SPDR S&P Homebuilders ETF
Shares of the XHB, an exchange-traded fund designed to track the performance of the S&P Homebuilders Select Industry Index, are trading 3% lower this afternoon to stand at $18.29 as of 2:50 pm (ET). Pessimistic positioning by one options strategist suggests shares of the underlying fund could continue to decline ahead of June expiration.
The investor initiated a three-legged options combination play, essentially selling call options to finance the purchase of a debit put spread on the fund. The pessimistic player established the trade by purchasing 12,000 puts at the June $18 strike for a premium of $0.79 apiece, spread against the purchase of the same number of puts at the lower June $17 strike for $0.44 each. The third leg of the transaction involved the sale of 12,000 calls at the June $20 strike for a premium of $0.36 a-pop.
The investor responsible for the bearish play pockets a net credit of one penny per contract, and keeps it as long as shares trade below $20.00 through expiration day. Maximum potential profits available to the trader ñ including the net credit received ñ amount to $1.01 per contract and pad the investorís wallet if shares of the underlying fund decline another 7.05% from the current price of $18.29 to breach the $17.00-level by June expiration.
MTH ñ Meritage Home Corp.
The homebuilding company, like the homebuilders ETF, enticed bearish options investors late in the trading session. Meritage Homeís shares are down sharply by 5.35% to $22.11 as of 3:00 pm (ET). But, Meritage is not the only one suffering today as shares of rival firms Pulte Group Inc., Lennar Corp and D.R. Horton, Inc., also declined significantly along with the price per share of the SPDR S&P Homebuilders ETF.
Pessimistic options players expecting MTHís shares to continue lower in the next several months purchased at least 4,300 puts outright at the September $20 strike for a premium of $1.60 per contract. The confirmed purchase of the these contracts represents just a portion of the more than 10,000 puts exchanged at that strike today where previously open interest stood at just 377 lots. Put-buyers make money if Meritageís shares plummet 16.75% below the current price of $22.11 to breach the effective breakeven point to the downside at $18.40 by September expiration.
AIG ñ American International Group, Inc.
Bearish investors established pessimistic positions using put options on AIG this afternoon with shares of the underlying stock trading 1.90% lower to $37.53 with 45 minutes to go before the closing bell tolls. One or more investors utilized the ratio put spread strategy to brace for continued share price erosion through May expiration.
It looks like traders purchased approximately 4,000 puts at the May $37 strike for an average premium of $2.48 apiece, and sold about 8,000 lots at the lower May $30 strike for an average premium of $0.39 each. The average net cost incurred by ratio-spreaders in this case amounts to $1.70 per contract.
The investor or investors responsible for the put play make money if AIGís shares trade beneath the average breakeven price of $35.30. Maximum potential profits of $5.30 per contract are available should shares of the underlying stock collapse 20% lower to $30.00 by expiration day.
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