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Bull is building a position in AvalonBay

Mike Yamamoto (mike.yamamoto@optionmonster.com)

One trader is turning bullish on AvalonBay Communities as the housing developer tries to rebound from its lowest level in more than a year.

optionMONSTER's tracking systems detected the purchase of 2,450 October 125 calls for $5.70 and the sale of roughly the same number of October 115 puts for $4.60. These are clearly new positions, as there was little to no previous open interest in the two strikes.

The result is a bullish combination spread that is selling the puts to offset the purchase of the calls, resulting in a net cost of $1.10 to open the trade. If the stock rises, the value of the long calls will rise while the puts sold short will decline. But the opposite will occur if AVB falls, and the trader will face the obligation to buy shares if they drop below $115. (See our Education section)

AVB rose 1.38 percent yesterday to close at $125.73, a day after hitting its lowest level since December 2011. Shares had been trading near $139 as recently as late January.

The company is scheduled to hold its annual shareholder meeting on May 22.

Total option volume in the name was just shy of 5,300 contracts, 5 times its daily average in the last month.

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