Unusual Options Activity: The Howard Hughes Corporation (HHC)

Put buying suggests drop ahead.

Over 2,600 contracts traded on the January $120 put options on The Howard Hughes Corporation (HHC), up from a volume of 100. That’s a 27-fold increase in volume, a very unusual move in a name that typically has little options activity.

With shares at $126, shares need to drop nearly 5 percent for this option to move in-the-money. With 105 trading days to go, it’s a bet that could play out.

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  • The company, an owner, manager, and developer of various properties throughout the United States, seems like an unlikely candidate for a bearish trade. However, shares trade at over 50 times earnings, and the company has a high amount of debt, although that tends to be typical of real estate development.

    Action to take: With a slowing economy, a development-heavy real estate operation is the most prone to a pullback. With a high price relative to valuation, and with no dividend to cushion volatility, investors have far better opportunities in the real estate space.

    With the possibility of a further pullback on slowing economic conditions, and with the company reporting earnings in the first week of November, speculators may want to consider buying the January $120 put, provided they don’t pay more than $5.50, or $550 per contract.