Pessimistic Traders Love Puts on Lennar Corporation (LEN)

03/12/2010 12:01 am EST


Elizabeth Harrow

Director of Digital Content, Schaeffer's Investment Research, Inc.

Put volume has accelerated to more than three times the norm late this week on Lennar Corporation (LEN), with 9,767 of these bearishly oriented options changing hands yesterday morning alone. By contrast, LEN was expected to see put volume of just about 3,200 contracts yesterday.

LEN price chartThe day's most active strike is LEN's April 16 put, where 8,659 contracts have crossed the tape. About 87% of these out-of-the-money puts have traded at the ask price, indicating they were most likely purchased, and implied volatility on this option is up 2% at last check. With just 1,445 contracts currently in residence at the April 16 put, it seems safe to assume that speculators are adding new bearish bets here today.

This pessimistically slanted speculation is just more of the same for LEN. During the past ten days, traders on the International Securities Exchange (ISE) have bought to open 1.51 puts for every call on the homebuilder. This ratio ranks higher than 79% of comparable readings taken during the previous year, confirming that option players have been purchasing puts over calls at a faster pace than usual in recent weeks.

In the same skeptical vein, LEN's Schaeffer's put/call open interest ratio (SOIR) stands at 1.30, with puts comfortably outnumbering calls among options set to expire within three months. This SOIR arrives in the 86th annual percentile, as short-term speculators have been more bearishly aligned only 14% of the time.

Outside the options arena, short sellers are also betting on a plunge, with a noteworthy12.9% of LEN's float dedicated to short interest.

With LEN up 35.4% in 2010, this bearish sentiment seems rather heavy-handed. The stock hasn't finished a single week below its ten- and 20-week moving averages since early January, suggesting its year-to-date uptrend is still firmly intact. However, pessimistic players could be eyeing resistance from the $17.50 level, which previously rejected the stock back in September 2009.

By Elizabeth Harrow of Schaeffer’s Trading Floor Blog

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