Here is a preview of what I will discussing tonight on Options Action on CNBC at 5PM:
Based on the housing market headlines I’ve seen in the past year, you’d think housing prices were increasing 20% a year or something. The “recovery” is only a recovery in comparison to the past few years. It’s still a housing market depression when viewed in the context of the past 25 years. New Home Sales over the past 25 years:
The “recovery” is not looking so strong anymore.
Meanwhile, the housing-related stocks are trading like it’s boom times in the market. Enis touched on this in his Macro Wrap post on Feb. 20th, writing:
The housing sector is one of the most overvalued sectors in the U.S. stock market, for several reasons. Here are 3 brief points on why I’m bearish on TOL and U.S. homebuilders as a whole:1) This is a housing recovery, not a housing boom. The housing market has clearly improved in the past 12 months, but TOL’s current selling pace in its communities is still below its 25 year average2) Meanwhile, the stock is priced for more than a boom. The stock is trading at 2005 levels, when the stock earned more than $4 per share. In 2013, it’s slated to earn around $1.3) Relative valuation for other sectors much better than homebuilders like TOL. If you want to get long the U.S. housing market, buy Toyota or Ford.
TRADE: XHB ($27.85) Bought the Apr 27/25 Put Spread for .45
-Bought 1 Apr 27 Put for .70
-Sold 1 Apr 25 Put at .25
Break-Even on Apr Expiration:
-Profits of up to 1.55 between 26.55 and 25 max profit of 1.55 at 25 or below
-Losses up to .45 between 26.55 and 27, max loss of .45 at 25 or above
Trade Rationale: If the Market is in a topping phase, which I believe it is, I want to get short exposure to sectors that I think have overshot on the upside, or in the case of housing and related sectors, already discount a good bit of the supposed recovery.