Mike Khouw's D.R. Horton, Inc. (DHI) Trade

On CNBC's Fast Money, Mike Khouw suggested a bearish trade in D.R. Horton, Inc. DHI, as the foreclosure crisis continues to threaten home builders. He said that usually when people start to buy protection on the debt side, they start to buy it on equity side too. With an increase in price of CDS, Mike Khouw spotted higher put options activity in D.R. Horton's (DHI) January and December put options. Mike Khouw believes that there is some floor at this level for D.R. Horton, Inc. (DHI), despite the fact that its book value will be hurt by the foreclosure crisis. For that reason, he wants to follow along the activity in put options, but he doesn't want to lay out a lot of premium. He wants to sell two December 8 puts for $0.12 each, and buy the December 10 put for $0.60. He will spend $0.36 for this trade, and if DHI drops below $9.64 at the expiration this trade will start to make the money. Maximum profit would be made at $8. D.R. Horton, Inc. (DHI) fell 0.10% today, and closed at $10.37.