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What's behind call action in builders fund

Chris McKhann (chris.mckhann@optionmonster.com)

Option volume in the SPDR Homebuilders Fund today is already twice the daily average as a call spread leads the way.

The XHB is trading just off a three-year high, up fractionally this morning to $20.16. It has been range-bound around $20 since hitting the intraday high of $20.39 on Feb. 3. Shares were at a 52-week low of $12.21 just four months ago.

The total option volume in the XHB tops 30,000 contracts, almost all of that in one call spread. A trader bought 18,211 April 21 calls for the ask price of $0.50 with no previous open interest at that strike. Seconds later, he or she sold 12,141 March 20 calls for $0.69.

The previous open interest at that March strike had been 30,856, so this was likely a roll of the position to a higher strike from March to April. Time decay will increase exponentially until the  March contracts expire in three weeks, especially for the at-the-money strike.

This could also be a trader opening a new diagonal spread, which would suggest that the trader sees the XHB hovering around current levels through the March expiration, though that position could still profit if the stock falls.

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