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Wednesday, December 6, 2023

Traders Construct Bullish Positions In Homebuilders ETF Options


Today’s tickers: XHB, LULU & GDX

XHB – SPDR S&P Homebuilders ETF – Heavy call buying in the front month calls on the Homebuilders ETF this morning may mean some traders are positioning for the price of the underlying to extend gains through expiration next week. Shares in the XHB, an ETF comprised of positions in homebuilding-related stocks including Home Depot, Bed Bath & Beyond and Toll Brothers, are up 1.25% at $20.16 this afternoon. The Jun. $21 strike call saw the most action this morning, with more than 30,000 contracts changing hands against open interest of 20,554 positions. The single-largest trade, a block of around 21,440 call options, appears to have been purchased outright at a premium of $0.18 each. The call buyer stands ready to profit should shares in the XHB move up another 5.0% to top the effective breakeven price of $21.18 by June expiration.

LULU – Lululemon Athletica, Inc. – Props to the buyer of a large put spread on athletic apparel retailer, Lululemon Athletica, Inc., on Wednesday prior to the Canadian company’s second-quarter earnings report. The stock is down 9.5% this afternoon at $63.40 after Lululemon’s full-year earnings and sales forecasts fell short of analyst estimates. A 10,000-lot Jun. $60/$67.5 put spread, which was untied to stock but could be a hedge to insulate the value of an existing long position in LULU shares, cost a net premium of $1.30 per contract yesterday. As of 12:45 p.m. ET today, the same $60/$67.5 put spread costs a net premium of $3.86 per contract to purchase, a near 200.0% increase in the sticker price on the strategy overnight. Put volume hovering around 2,000 lots at each strike this afternoon indicates the position is still at least partially intact. Downside protection provided by the put play maxes out at $60.00 should shares in LULU continue to pull back ahead of June expiration.

GDX – Market Vectors Gold Miners Index ETF – Shares in the GDX, an ETF that provides exposure to publicly traded companies involved primarily in gold mining, slipped 3.7% to $45.85 by midday. A large put spread initiated in the July expiry this morning suggests one strategist may be positioning for the price of the underlying fund to reverse recent gains and potentially slump to a fresh multi-year low by expiration. During the past three weeks shares in the GDX gained more than 21.0%, rebounding sharply off a near three-year low of $39.08 on May 16th, to close Wednesday afternoon at $47.58. The single-largest transaction in GDX options today yields maximum gains should shares in the fund sink to the lowest level since August 2009. One trader may have purchased 20,000 puts at the July $44 strike and sold the same number of puts at the lower July $38 strike, all for a net premium outlay of $1.20 per contract. Both legs of the spread traded to the middle of the market, making it difficult to pin down the direction of the transaction. If indeed the spread was purchased, the put play may be a hedge to protect a long position in the underlying fund or an outright bearish bet on the near term performance of gold mining stocks. The spread starts making money, or providing downside protection, if shares in the GDX decline 6.7% to breach the effective breakeven point at $42.80. Maximum potential profits of $4.80 are available on the position should the price of the underlying plunge 17.1% to settle below $38.00 at expiration next month.


Caitlin Duffy

Equity Options Analyst

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