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Hovnanian Enterprises Inc. Message Board

  • drugsman12 drugsman12 Jan 17, 2013 6:33 PM Flag

    I wish i understood what the big volume day in DEC and now todays volume was all about

    How is it possible that shares representing over 10 or 20% of the company print in one print. This is wacky. I would like an explanation.

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    • The volume is certainly tied to options expiration s. Tomorrow is the actual expiration day but I forgot if they changed the action to need to occur the day before or if both days are busy.

      There are pretty big positions both on the long and short side (puts and calls) of the stock expiring tomorrow. It isn't easy to really know what any of that actually means with any certainty. A long term investor might have sold January 19 calls with a 6$ strike price if he though the stock was ahead of itself and wanted to take alittle off the table and wasn't afraid to have the stock taken away from him if it surged higher . The buyer of that Call option, which would make money if it goes up, very likely was somo-one who wanted to short the stock but wanted to limit the upside risk ... of course they could have just bought a put, but maybe there wasn't a natural seller of puts. Being short the stock and holding a call has some financial wrinkles.. for a qualified fund/company/customer they get to hold the cash proceeds from the short sale net of the option purchase...a different form of leverage which

      ... to get even more complicated, they might buy HOV debt with at the high interest it tosses off (or accrues.. don't need that actual payment date to fall in the period).

      Knowing exactly what demand or volume is created is pretty close to impossible to guess but with large option positions, it is almost guaranteed that you'll have far larger than normal volume.

      When people have positions on offsetting sides of the stock (short the stock with a call option in the example I gave) .. unwinding the position tends to push the stock price towards one of the strike prices expiring with heavy outstanding interest.

      Things can get really volatile though...especially if you have a relatively thinly traded stock relative to the size of the positions. With it being a holiday weekend, its quite likely that people would try to close out positions earlier.

      I am certain that the bonds have a huge role with the option activity but I don't really know where (if anywhere is even possible) to get any idea of how the HOV bond prices are fluctuating day by day.

      Its not so simple as people being bullish or bearish on the stock... if they can find a way to collect 20% annualized interest (1.6% interest over a month period compounded comes to more than that) by holding bonds while holding options to largely neutralize swings in correlated bond prices, they will.

    • Options say this going down-becareful if you are trading a heavily shorted stock-huge bet hov going back to 4dollar level

      Sentiment: Strong Sell

    • Happens all the time. Was a cross, no worries. Heading to 7 bucks soon! Have faith young sky walker

      Sentiment: Strong Buy

 
HOV
1.35-0.02(-1.46%)Feb 11 4:02 PMEST