Housing and Brazilian Fintech: Options Recap

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What does a Texas home builder have in common with a South American tech stock? Both saw gushes of bullish options activity on Thursday.

First, DR Horton (DHI). The housing company headquartered between Dallas and Fort Worth reports earnings on July 26. Options traders carefully targeted that release by amassing over 24,000 of the 27-July 42.50 calls. They initially paid $0.64, but premiums quickly rose to $0.75, then $0.80 and then all the way over $1 as the shares nudged upward.

Calls fix the price where a security can be purchased, so they tend to gain in value when a stock advances.  This way the buyers won’t miss a rally past $42.50 but also have much less capital at risk than they would by owning common equity. (See our Knowledge Center for more on the use of options.)

DHI rose 1.21 percent to $41.66 yesterday. The company’s last earnings report in April beat estimates but the shares failed to hold an initial surge on the news. (Click here for more on housing.) Thursday was its busiest session in the options market in over three years.

DR Horton (DHI) chart with 50-day moving average and historical options volume.

Second, PagSeguro Digital (PAGS). The Brazilian provider of electronic payment services to small businesses went public in January, rallied through April but has skidded lower over the last three months. Yesterday call volume shot past 80,000 contracts for the first time ever as activity surged at two strikes:

  • Approximately 35,000 November 30 calls were sold for $about $2.90.
  • Some 30,000 November 25 calls were bought for roughly $5.

Volume was below open interest in the 30s, which suggests the investor exited a money-losing position and rolled to the lower strike. Doing so increased his or her net delta, which could result in more profit from a small bounce.

PAGS fell 2.86 percent to $26.14, its lowest close as a public company. Earnings are scheduled for August 30.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.