Strategy gives MDC room to run
Homebuilders were strong yesterday, and one investor is giving MDC room to run.
optionMONSTER's tracking systems show that 3,400 June 27 calls were bought for $2.70 and an equal number of July 30s were sold for $0.50. Volume was below open interest in the June contracts, which indicates that an existing short-call position was rolled forward in time.
The trader probably owns shares in the Denver-based company and had previously sold the Junes as part of a covered-call strategy . He or she then swapped out of those and into the 30s, paying $2.20 in the process but also raising the eventual exit price in the stock by $3. The trade reflects a belief that more upside potential is likely. (See our Education section)
MDC rose 2.19 percent to $29.27 yesterday, its highs price since last summer. The shares had been struggling at $29 while making higher lows for several months, which could make some chart watchers think that it has broken out of a bullish triangle formation.
The rally came after Standard Pacific gobbled up Ryland to form the country's No. 4 homebuilder. Economic reports have also shown strength in the industry, including yesterday's NAHB sentiment index.
Almost 9,000 contracts traded in MDC in the session, more than 90 times its dail average for the last month.
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