LEN Unusual Option Activity Report
Homebuilders like Lennar Corp (NYSE: LEN) are seeing a strong bid on News of the Biden administration’s proposed $15,000 tax credit for new home buyers. As homebuilding stocks are rising on Wednesday, option traders found opportunity in LEN as it outperformed with over a 6% gain at the time of this writing.
Clearly, the intent of the credit is to help first-time homebuyers afford a home in an overheating market. Whether this allows the home price rally to continue is anyone’s guess, but the proposal is creating near-term buying interest and the option activity on LEN helps to quantify that opportunity.
LEN Option Activity
The call option volume on LEN is over 10 times the 5-day average. Also, over 70% of the call volume got filled at the ask price. Those details doesn’t exactly give a great indication of the bullish interest, other than the fact high call volume like that is typically buying. Here’s a breakdown of the significant option activity:
- 6,720 19 MAR 21 $85 calls BOT in two prints @ $3.63 to $3.65 against open interest of 8
- 6,720 19 MAR 21 $90 calls sold in two prints @ $2.05 to $2.06 against open interest of 5
The above activity was a long call vertical that cost around $1.68 to $1.69. The notional value of this trade at 6,720 contracts is $1.13 million and a breakeven price of $86.69. The trade reaches max gain above $90 by the March 19 expiration. This is one of the features of unusual option activity, it can provide a target and timeframe of the trade being made.
LEN Techncials
Today’s movement in LEN is pushing the price through its upper trendline. That trendline is part of a larger symmetrical triangle pattern that goes back to the October 16, 2020 high.
Symmetrical triangles have a measured move from the initial high to the next low. The high on October 16 is near $85 and the next low was on October 30 near $70. The target is based on the $15 measured move added to the breakout level near $81. That gives a price target of $96.
Conclusion
Homebuilders are seeing a resurgence today on the housing news and LEN has been a beneficiary. This trend has been building for a few weeks since its attempted breakout on December 17, 2020. Today’s activity dovetails with the technical pattern that is forming on the stock and is arriving at a similar target and a similar timeframe. This type of confluence is something that help provide more conviction in the stock’s potential movement.
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1 Comment
Michael Phipps
January 21, 2021tax credit on income tax is well a bad idea. people looking to buy a first time home right now just don't need the credit and it will no nothing for their cash flow on a monthly basis. In some states the issue is just property taxes are no adding as much to new home purchase are interest rates.
Tax credit for new home buyers will not help them get a loan or qualify for a loan. And from I"m seeing in my Area the real issue is lack of entry level homes. Take my son for example, he just put a 1300 sq home up on the market. The home real falls in the category of what a new family, say one wager earn would be looking for. On the first day of sign up he had 12 offers. And this is not California or Texas. This is in North Alabama.
The local credit union will finance new home owners at 105% meaning basically no out of pocket cash. However, the interest rate is around 4.5%. And the Credit union is caring the loan its not FHA or VA.
What is needed is a stimulus package that helps states and local governments work on their infrastructure. What is needed is vaccine push out accerated. What is need is better ways to fight the virus like ultraviolet lambs in public facilities and homes. We need more than lockdowns and wear a mask and wash your hands. We have to figure our away to function within the virus around us. That is where the $$$ needs to go. But it will not unfortunately.
Right now if you need over night surgery you can't get it. Hospitals are full with Covid patients. The Healthcare system is not designed to handle the problem.
Raising taxes will not help the situation. The unfortunate event is that Biden is the smartest guy in the room, which is really bad. Next winter will be worse that this winter if the virus takes the normal path. And the Virus will be with us for a decade or more just on a smaller scale.
So the solution is a tax credit for new home buyers. Oh, well makes sense to someone.