Lennar Corp. (LEN) is a Miami based residential construction corporation and home builder. At the time of this post (9:00AM CST), LEN is currently trading at 45.67, down 1.32% on the day. LEN is down this morning with the broader market, but also fell significantly in yesterday’s session after fellow home builder KB Home (KBH) reported a significant fourth quarter earnings miss. KBH CEO Jeffrey Mezger also released commentary yesterday indicating that weaker than expected profit margins could prevail into the foreseeable future, plunging the stock down nearly 16% to two year lows. LEN still remains in the upper portion of its 52 week trading range of 35.74-48.52, and is scheduled to report earnings tomorrow, 1/15/2015 before the opening bell.

Over the last eight quarters of earnings data available, LEN has traded mostly bullishly following earnings, moving higher on five out of eight sessions immediately following the EPS release. The average historical move over this same time period was 3.2%. The options market is currently pricing in a slightly larger than average implied move of approximately 5.43% in the stock by this Friday’s monthly options expiration, which would represent roughly a $2.50 change in the price of the stock over the next three trading days. While LEN has traded fairly bullishly over the last eight quarters of earnings, following the comments out of KBH yesterday regarding softening demand and weaker than expected profit margins for the home builder, I will certainly be leaning bearish this name going into earnings. I will subsequently be looking to establish a short position in LEN before today’s close.

Potential Trade: Long LEN Jan 44-43 Put Spreads for $0.25
Risk: $25 per 1 lot
Reward: $75 per 1 lot
Breakeven: $43.75

Bed Bath & Beyond Inc. (BBBY) is a New Jersey based consumer home goods retailer that operates over 1,500 brick-and-mortar store locations across the United States, Puerto Rico and Canada. At the time of this post (10:30AM CST), BBBY is currently trading at 79.36, up 1.48% on the day. The stock remains in a steep uptrend and hit new 52 week highs on the session, raising the highs on its 52 week trading range to 79.51 against lows of 54.96 which printed in late June. BBBY is set to report earnings today, 1/8/2015 after the market close.

Over the last eight quarters of earnings data available, BBBY has traded mostly bearishly, moving lower on five out of eight sessions immediately following the EPS release. Historical volatility over this time period has been 5.8%, though the options market is currently pricing in a slightly larger implied move of around 6.29% based on the current price of the expiring weekly ATM straddle. This implied directional move would represent approximately a $5.00 change in the price of the underlying stock by tomorrow’s weekly options expiration. Although BBBY is currently trading well over the Ichimoku Cloud on the daily chart, the stock has potentially become over-extended, and coupled with its propensity to trade lower following earnings releases, I will be leaning bearish this name going into this afternoon’s EPS report.

Potential Trade: Buying the BBBY Jan 9th Weekly 77-75 Put Spreads for $0.50
Risk: $50 per 1 lot
Reward: $150 per 1 lot
Breakeven: $76.50

Petróleo Brasileiro S.A. – Petrobras (PBR) is a Brazilian oil and gas corporation that operates primarily in the production and refinery of petroleum oil. As of the time of this post (1:20PM CST), PBR is currently trading at 6.08, down 10.06% on the day. The stock is currently pressing its 52 week lows after pulling back steadily through the 20.00 support level that broke convincingly in early September. The company has been battling a series of controversies over the last several years, beginning with corruption allegations in 2009. More recently, PBR has been identified by auditors as maintaining insufficient accounting standards, and as a result the company has postponed its Q3 earnings release indefinitely.

If the company does not report earnings this month they will be in technical default as they will have violated one of their bond covenants. The stock has been very weak and today we saw some large orders hitting the tape that imply near term downside in PBR. Earlier today a trader bought 10,050 of the PBR Jan 9th Weekly 6 Puts for $0.19. With only a few day until expiration this is an extremely large order. With a well defined risk to reward setup I like this trade for a short setup. I bought a small position in these puts for $0.20 and will take targets every $0.10 higher.

Trade: I bought the PBR Jan 9th Weekly 6 Puts For $0.20
Risk: $20 per 1 lot
Breakeven: $5.80

CEMEX, S.A.B. de C.V. (CX) is a Mexico based producer and distributor of ready-mix concrete solutions and other associated construction products. At the time of this post (11:50AM CST), CX is currently trading down 3.04% on the day, to 9.88. The stock has been trending extremely bearishly over the last month and a half and is now just $0.20 off the 52 week lows.

Earlier this morning at approximately 10:22AM CST, we detected and flagged some unusually large bearish options activity as 3,474 of the Feb ’15 10.0 puts went off at the ask for a cost of $0.65 per contract. Moments later, at 10:36AM CST, another large block buy of 2,809 contracts again lifted the offer at $0.65. The open interest in this option going into today’s session was a very modest 354, so we can confidently surmise that both of these large block purchases were opening transactions looking for further downside in the stock. With a total cash outlay of approximately $408,395 before commissions, it appears a confident trader is looking for a continued push lower, through 52 week lows going into the February monthly options expiration on February 20th 2015.

Trade: A trader bought 3,474 CX Feb 10 Puts for $0.65
Risk: $65 per 1 lot
Breakeven: $9.35

Earlier this morning at approximately 8:49AM CST, we detected and flagged some unusually large bearish activity in the Utilities Select Sector SPDR ETF (XLU). The most notable trade to hit the tape at this time was a large buy of over 5,300 Jun 44.0 strike puts which were purchased at the ask for $1.04. This block-buy came on the heels of several other sizable trades that had already amassed thousands of contracts bought up at the ask just prior. It appears a significant bearish position is being established in the energy utility ETF, betting on about a four point move lower by the June 19th 2015 monthly options expiration.

As of the time of this post, over 12,200 total contracts have traded already in the Jun 44.0 puts, and the XLU has now traded over 2.5x its average daily options volume.

Trade: I bought 200 of the XLU Jun 44 Puts for $1.05
Risk: $105 per 1 lot
Breakeven: $42.95

Freeport-McMoRan Inc. (FCX) is a natural resources company based in the U.S. with assets around the world. The company’s stock is currently trading around $23.58 in a 52 week range of $20.94-$39.32. The stock has been massively under-performing the market this year with shares falling over 37% year to date. Traders are expecting this weakness in FCX to continue through the beginning of the New Year as we have seen some very bearish options activity in FCX during today’s session.

Earlier today a trader bought 3,223 FCX Feb 20 puts for $0.43. Nearly 12,000 contracts have now traded on that line and FCX is lower from where it was when the puts were bought. This is a very bearish trade and has a breakeven below the stocks 52 week low. FCX is also trading below the Ichimoku Cloud meaning that it is still in technically bearish territory. With a weak chart and large blocks of bearish positions coming across the tape I think that FCX sets up well for a short here.

Trade: I bought the FCX Feb 20 puts for $0.42
Risk: $42 per 1 lot
Breakeven: $19.58

Consumer Staples Select Sector SPDR Fund (XLP) is an ETF that seeks to provide returns in line with a consumer staples sector index. XLP is currently trading around $49.21 in a 52 week range of $39.83-$49.63. The fund has been outperforming the broader market this year with shares rallying more than 14.5% year to date. Despite this strong performance some traders are establishing some very bearish positions in today’s session.

Earlier this morning a trader bought 9,968 XLP Feb 48 Puts for $0.54. This is a very large order that has this trader risking nearly $540,000 through Feb expiration. Although XLP looks very strong on a chart this order is very large and likely represents this trader’s belief that XLP has become overbought. This trade has a good risk vs. reward setup so I elected to buy some of these puts.

Trade: I bought 200 of the XLP Feb 48 puts for $0.55
Risk: $55 per 1 lot
Breakeven: $47.45

Seagate Technology Public Limited Company (Nasdaq: STX, $67.91) has outperformed the overall tech sector in 2014, with shares having risen 20.5% year to date versus 17.8% for the sector overall.

STX shares have traded in a 52-week range of $48.21-$69.42, with 2.8 million shares changing hands each day on average. STX hit it’s all-time high of $69.40 one week ago on December 23.

At least one trader has a high level of conviction STX will carve out new highs before week’s end. With just over an hour left in Monday’s session, we saw a trader come in and buy 3,000 STX Jan Weekly 67.5 Calls expiring this Friday for $1.14 with stock trading $68.31. An opening position, this represents a $342,000 outlay in long premium with the potential to control 300,000 shares of stock should these calls be in-the-money at Friday’s expiration.

Since this trader bought these calls, STX has sold off and these calls are trading about $0.80. True believers in unusual options activity might use this sell-off as an opportunity to follow along at a lower price.

Best Buy Co., Inc (BBY) is an international tech retailer based in Richfield, MN that operates just under 2,000 brick and mortar locations across the US, Canada, Mexico and China. At the time of this post (12:55PM CST), BBY is currently trading down 1.34%, to 38.62 on the day. The stock continues to push the 40.00 level resistance on the daily chart, but has thus far been unable to break higher with any conviction after breaking lower through this level and eventually gapping down hard in mid-January of 2014.

Earlier this morning, we detected and flagged some unusually bullish options activity in the BBY Feb ’15 40.0 calls as a large buyer stepped in and bought a huge lot of over 8,500 contracts against an open interest of just 264. This purchase went off above the ask for $2.09, and in conjunction with the open interest statistics, we can be confident that this was an opening long transaction. It would appear that a confident buyer anticipates Best Buy will be able to finally break above key 40.00 resistance going into the second month of the New Year, and the initial block purchase of over 8,500 contracts represents a cash outlay of approximately $1,794,265 before commissions. As of this post over 10,800 of the Feb ’15 40.0 calls have traded on the day.

Trade: A trader bought 8,585 BBY Feb 40 Calls for $2.10
Risk: $210 per 1 lot
Reward: Unlimited
Breakeven: $42.10

Walgreen Co. (WAG) is a Deerfield, IL based operator of over 8,200 nationwide brick-and mortar Walgreen’s drug stores that provide retail goods, pharmacy and health-and-wellness services. At the time of this post, (12:00PM CST) WAG is currently trading at 73.74, up 0.70% on the day. The stock is currently well within the upper portion of its 52 week trading range of 55.27-76.39, and is set to report earnings before the open tomorrow, 12/23/2014.

Over the last eight quarters of earnings data available, WAG has traded mostly bearishly, moving lower five out of eight sessions immediately following the EPS release. The average historical move during this same time period was 2.9%. Currently the options market is pricing in an implied move of approximately 2.64% or $1.95 in the underlying stock by this Friday’s 12/26/2014 weekly expiration, which would be well within the expected historical range. WAG is currently trading under 75.00 resistance on the daily chart after this level held firmly twice in early and mid June and rejected the uptrend again last week. Perhaps most worrisome is that the stock was unable to break through and trade above this level despite massive broad-market strength last week that saw most individual stocks ripping higher. As WAG has demonstrated an inability to trade higher despite favorable market conditions, I am currently leaning bearish this name and will look to establish a short position going into earnings tomorrow.

Trade: Buying the WAG Dec 26th Weekly 72.5-71.5 Put Spreads for $0.30
Risk: $30 per 1 lot
Reward: $70 per 1 lot
Breakeven: $72.20