metalhead

Beazer Homes: Option Traders Expecting Major Move Higher in Another Homebuilder

Joe, I see your point and there are safe ways to play BZH, like going long with a tight stop. However I refuse to play the game of speculating in short term price movements. The only people getting rich are Goldman Sachs and other trading houses playing these short squeezes with OPM (other peoples money.)

I just picture some poor guy dumping a good chunk of his savings into this and forgetting to set a stop loss, then waking up one fine day to see CNBC announce they've filed ch. 11.

Beazer Homes: Option Traders Expecting Major Move Higher in Another Homebuilder

I've taken a detailed look at this companies balance sheet, and unless you are a quick trader I'd stay far away.

They aren't generating enough sales to offset debt service. They've pulled out of markets, slashed staff and costs, but their land positions are still huge. Available cash is down around $400 million, and they have a coupon payment due next month ($136 million.) Unless they can generate significant increases in sales, they will be bankrupt in early 2010.

I am projecting about 3-5K closings for FY 2009, based on past quarters numbers. Unfortunately, if they aggressively slash prices to meet quotas they will take more balance sheet impairments. This will reduce their tangible net worth below covenant thresholds, potentially triggering margin calls on 10% of their debt (another $180 million.) If that happens, they will probably file ch. 11 later this year.