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Cheap upside bets in Hovnanian

Mike Yamamoto (mike.yamamoto@optionmonster.com)

Traders are making cheap bets that shares of homebuilder Hovnanian will pop in the next month.

About 3,700 July 5 calls were bought for $0.05 on Friday, according to optionMONSTER's Heat Seeker tracking system. This is clearly new positioning, as previous open interest in the strike was just 248 contracts.

These long calls lock in the price where the stock can be purchased through mid-July no matter how far it might climb. They could be sold earlier at a profit if premiums rise with a rally before then, providing potentially significant leverage, but the contracts will expire worthless if shares remain below $5. (See our Education section)

Earlier in the session Hovnanian also saw 1,259 August 4.50 puts sold for $0.30, another bullish trade. That followed November 4 put selling last week as traders targeted a floor in the beaten-down shares.

HOV was up 0.45 percent, or $0.02, on Friday to close at $4.45. Shares have remained in a tight range since dipping to $4.32 last Tuesday, its lowest price since November 2012.

Total option volume in Hovnanian topped 13,500 contracts on Friday, 8 times its daily average for the last month.

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