Bears profit as $KBH hits lows

KB Home logged a new 52-low today, handing sizable gains to downside option traders.

On July 25, Investitute’s proprietary programs flagged the purchase of 3,750 January $19 puts for $0.71 as part of a bearish roll with shares at $23.94. This was clearly a new position, as open interest in the strike was a mere 6 contracts before the trade occurred.

Those puts sold for $1.49 today, more than twice their purchase price. The stock has fallen 20.84% in the same time period, underscoring how options can far outperform moves in their underlying shares.

Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.

KBH reached a 52-week low of $18.78 this afternoon before closing at $18.82, down 4.32% on the session. Homebuilders have been slammed on fears of rising interest rates, tight inventories, and labor shortages.