PHM ? PulteGroup, Inc.
Shares in the homebuilder are down 1.3% this morning ahead of the Fed?s decision regarding further quantitative easing to trade at $15.35, giving up some of Wednesday?s 7% rally that lifted the stock to a four-year high of $15.70, on an intraday basis. Pulte?s shares moved up sharply yesterday on an upgrade to ?Buy? from ?Hold? with an increased target price of $17.00 from $13.00 at Williams Financial Group.
Today, a large call spread initiated on Pulte suggests one big options market participant is positioning for shares in the homebuilder to extend their impressive run during the next 16 months. Since roughly this time last year, the stock has more than quadrupled, rising from a low of $3.29 on October 4th, 2011, to yesterday?s high of $15.70. The long-term bullish bet established in PHM options this morning yields maximum possible profits if the stock gains more than 60% by January 2014 expiration.
The strategist responsible for the trade appears to have purchased 15,000 calls at the Jan. 2014 $15 strike for a premium of $3.75 each and sold the same number of calls at the Jan. 2014 $25 strike at a premium of $0.95 each. Net premium paid for the position amounts to $2.80 per contract and establishes an effective breakeven price of $17.80. Thus, the trader starts making money if the shares rally 16% to top $17.80, and could rake in maximum potential profits of $7.20 per contract in the event PHM?s shares soar 63% to top $25.00 by expiration.
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