Behind the $50 million bet against home builders

Housing stocks have been the ultimate catch-up trade in the fourth quarter, rising 13 percent since October. But if the options market is any indication, things are about to cool off.

In a series of trades that caught the attention of options experts Monday, one large investor made several moderately bearish bets on a number of home builder stocks, including Pulte Home, D.R. Horton and Lennar.

The nature of the bets suggests that while this trader doesn't see those stocks falling hard in the new year, he or she doesn't see much upside either.

"One sizable institutional trader believes the home builders are about to hit a wall," said CNBC contributor Mike Khouw on Monday's Options Action segment inside Fast Money.

Specifically, the trader sold a number of calls on those stocks. When traders sell calls, they are betting that a stock will not rise above the strike price of the call of the option that they sold. In exchange for selling that call, they collect the price of the option, commonly called "premium" in options parlance. All told, the call sales on those three stocks generated $50 million dollars in proceeds.

Read MoreWhat to expect from housing in 2015

The most bearish bet was placed on Pulte Homes, where the trader sold 8,500 of the Feb. 22 strike calls for $0.50, a strategy that remains profitable if shares of Pulte Homes stay below $22.50 by February expiration.

The timing of the sales are also noteworthy, according to Khouw. As a group, those stocks are up an average of 20 percent since their October lows. And the expiry of those sold calls captures both the earnings for the three companies, and Tuesday's Case-Shiller home price data.

Said Khouw: "Maybe they're thinking (the rally) is going to slow down a little, at least in the next 53 days or so."

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  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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