After a respectable run of good wins – especially the BABA call trades – we still hold all open positions. We see no reason to exit anything. We’re also running into a bit of market “fun” these days, as volume ticks lower ahead of the Thanksgiving break. Be prepared to see little market action tomorrow because of it.
Despite the issue of volume, I do want to issue two new trades on homebuilder opportunities. The last time we played Lennar puts, for example, we took gains of 54% and 58%. We even played Toll Brothers puts for gains of 29% and 33%.
Before getting into the trade opportunities, it’s important for you to know this. Never risk the house on any trade with us, or anywhere else. Only risk up to your personal comfort levels. While we’re very confident in all trades we issue, this is still Wall Street.
Lennar (LEN) just hit a 52-week-high the other day on “upbeat” housing news. Unfortunately, folks have tried this bullish argument before and lost. As I’ve said since 2008, there is no recovery in housing. Housing stocks are now over-extended to the upside based on hopes yet again.
Lennar is now challenging the same pivot point failures that led to declines in January 2014, September 2013, January, March and May 2013. What’s sad is that all of those rallies were also created by false hope of recovery, too. Investors lost big money on those, as we walked with gains on put options.
KB Home (KBH) is now challenging prior failure points, as it over-extends its channel. As we’ve seen a few times, KBH has an historical tendency to fail at these points on false housing recovery hope, as well.
So how do we trade these names?
Without risking the house, here’s what you should consider.
Buy to open the LEN February 2015 47 put up to $2.80…
Buy to open the KBH April 2015 17 put up to $1.40.
If you celebrate, I hope you and your family have a happy, health Thanksgiving.
We’ll talk again soon.
Ian L. Cooper
Inside Value Trader