DR Horton (DHI) - More September Volatility Selling in the Home Builders
DR Horton (DHI) - More September Volatility Selling in the Home Builders
At the time of this post DHI was trading $10.14, up 1.6% with IV30 up 3.8%. A market snapshot is below.
I 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 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. The Stats Tab and Day's biggest trades snapshots are included below:
The Options Tab 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 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 of 44, HV20 of 44 and HV30 of 45. Hmm...
Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30 - red vs HV20 - blue). The yellow shaded area at the very bottom is the IV30 vs. the HV20 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 (red line) is right on top of the HV20 (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.
Trade Stats
- 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.
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About Ophir Gottlieb
Ophir has worked as an equity option market maker and prop trader on the NYSE ARCA exchange floor since Feb. 2008. Prior to working on the exchange floor, he worked as a structurer on the Countrywide trading desk and before that as the Director of Client Services and Research for the quant modeling firm Audit Integrity. He has a Masters degree in Financial Mathematics from Stanford University. He also has an MBA in finance and an undergraduate degree in quantitative economics with an area of focus in mathematics.
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