A Bullish Call On Philly’s Housing Sector Index

So far this week we’ve seen reports from two homebuilders, Lennar (LEN) and KB Homes (KBH). Both were unmitigated disasters, but in both cases, the stocks were pretty much unmoved. We see immense importance in this phenomenon – the stocks have been so beaten up and priced in so much bad news, that when the bad news does come out, there’s no reaction. We believe that the only place left to go for these stocks is pretty much up. Contrarian call? Yes it is. But that’s what we get paid to do.

We visited our friends at the Philadelphia Stock Exchange and their HGX index – we like it because it includes a diverse collection of twenty diverse names in the industry, and the options are very liquid. We’ve found what we think is a going to be a profitable trade in the sector in the November 170 strike Calls.

Chart Review:

As we look at the history of the trading range of the HGX index, we see that over the last six months it has tracked from as high as 240 all the way to the 158 level this week. At present, the index sits below its 50 and 200 day moving averages, which are at 173 and 216, respectively.

We think all the bad news is priced in here. We believe that any snap back in this index could very well be quite rapid and profitable for call option holders.

For the Record, the Philadelphia Exchange’s Housing Index is comprised of twenty companies that are active in the housing sector. These companies are:

Philadelphia Exchange Housing Sector Index (HGX) Components:

Investment Recommendation: We recommend that investors purchase the November 170 strike price Calls on the HGX Index for $4.50 or less. With the index presently at 157, this will give investors an upside break-even point of approximately174.50 on the index (170 + 4.50 points), which is approximately in line with the index’s 50 day moving average. Investors will have two months to realize these levels. We would look to exit this call option at a price point of $10. This ‘trigger’ order can be entered with your broker. Good trading!

Comments

[ikkyu]

Wow. That is a bold statement my friend. Option analysis software for think-or-swim gives you 28.9% odds of expiring at 170, 22.6% at 175. I will jump right on that bet thanks to the wisdom of a free blog. Roulette going red or black sounds substantially better (48%).

Cheers,
john

[fakuretardedwhoremama]

fakuretardedwhoremama! what an idiot a-hole!

[fxtrader07]

that's the problem always with technicians who do not care for fundamentals.
it may play out given the huge short-interest in HB stocks.
but if not, you will lose everything.
this is gambling, short-term playing.
whio makes the money? value investors who buy valuable businesses on the cheap.
who doesn't make money long-term? technicians who play aroud short-term all day long with cheap calls and no margins of safety behind their trades

[lsuavecito]

Well said; most buyers/sellers do not refer to their technical handbook prior to investing. Relative to the HB's, PUTS are and have been the move. Less than a year from now, when more atrocious news is released, most of the HB stocks will be 10 or less. U wanna try to catch the proverbial falling knife?

[Daniel Jones]

If you entered the $10 sale price that I referred to above, you got out on this trade in 4 days with a gain of 120%, give or take a few pennies. Option analysis software that the rest of the street is also running keeps you out of profitable trades. Anonymously calling names keeps you from making profitable trades.

We just made a ton of money shorting big Cap Tech (Oct 11th). That was stepping in front of a train, and your lovely software probably didn't catch that one either.

You can of course always subscribe to my e-bluewater.com newsletter service and catch these moves that will make you these kinds of returns. Or, I guess you can continue to laugh (and lose).

Cheers, and good trading!

Daniel Jones