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Strategy looks for big move in KB Home

Chris McKhann (chris.mckhann@optionmonster.com)

A large trader apparently believes that shares KB Home will make a big move up or down.

KBH is up 4.41 percent this morning to $16.68, not far from its two-year high of $17.30 reached on Sept. 19. The homebuilder's shares have more than doubled from support at $7 since mid-June.

A trader bought 18,000 January 15 puts for $0.99, which was above the listed ask price at the time. The volume was more than 10 times the open interest in that strike at the beginning of the day, clearly indicating fresh buying.

Roughly 2 minutes after the puts were bought, the largest block of KBH stock traded as 576,000 shares were bought for $16.5338. The combination of the stock and options creates an overall long volatility play that would profit from KBH moving sharply in one direction or the other and/or for the actual volatility to be greater than that implied by the options' premium. (See our Education section)

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