The $7 million bet that homebuilders could collapse
The bears are about to bulldoze the homebuilders — according to one trader.
In an eyebrow-raising wager Wednesday, someone purchased 15,000 of the XHB (NYSE Arca: XHB) Homebuilder ETF August 34-strike puts for 45 cents each. Since one options contract accounts for 100 shares of stock, this is a nearly $7 million bet that shares of the XHB will fall below $33.55 — or 5 percent — by next month. The ETF is already down more than 11 percent from its 2016 high hit June 9.
"This [bet] actually makes a lot of sense, because options prices are down in the homebuilder ETF right now even though we have a lot of home sales and homebuilder data coming out next week," Optimize Advisors co-founder Mike Khouw said Wednesday on CNBC's " Fast Money ."
Most notably, said Khouw, are earnings reports from D.R. Horton (NYSE: DHI) and PulteGrou (NYSE: PHM)p — which are among the top holdings in the ETF — next Thursday before the opening bell.
The options market is anticipating a more than 5 percent move in either direction for D.R. Horton and a 4 percent rally or decline for PulteGroup. If both of these implied moves pan out, it could represent a nearly $20 billion shift in market cap for the XHB.
Options traders calculate the implied move for equities by measuring a particular stock's so-called straddle — or at the money put and call. The amount of the straddle typically captures market makers' expectations for how much a stock is going to move.
"To me, when you consider [the XHB] was as low as $31.40 recently, this is a pretty cheap way to hedge your bet," added Khouw. The XHB is up more than 75 percent from its February low.
More From CNBC
Top News and Analysis
Latest News Video
Personal Finance
