Behind the unusual activity in Beazer Homes

In a trade that raised eyebrows in the options community, one big investor made what appears to be a massively bearish bet on Beazer Homes.

Shares of the homebuilder opened Thursday at $17.97. One firm bought 3,000 January 2017 10-strike puts for $1.23 per share. In order for this trade to make money, shares of Beazer Homes will have to fall below $8.77 by January 2017. In other words, the stock would need to get sliced in half.

Is someone really staking nearly $400,000 on the idea that Beazer shares are so overvalued? Actually, the true impetus for this trade is probably more nuanced.

Mike Khouw of Dash Financial points out that the trader might be hedging a position in the credit. For example, he speculates that the firm that put on the trade might be doing so to insure against a loss on Beazer bonds expiring in 2021, which offer a 7.5 percent coupon and are trading close to par value. Standard & Poor's rates those bonds CCC, indicating that the debt is "currently vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitment."

Read MoreFirst-time homebuyers hit lowest level in nearly 30 years

Beazer homes under construction in Gilbert, Ariz.
Matt York | AP
Beazer homes under construction in Gilbert, Ariz.

If an investor is trying to capture the yield on the debt, but is nervous about the prospects for the company, one could buy the puts as a hedge against the stock. If the company goes bankrupt in a nightmare scenario, and the stock falls to $0, those puts will pay the trader $3 million.

"I think what might be going on here is, someone might be hedging their bond position, because they can clip those coupons, buy some of those puts," Khouw said Thursday on CNBC's "Fast Money."

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