Cheaper to Buy than Rent?
With interest rates at or near historic lows, I have to give some credit to the Fed for somehow managing to keep rates low in the face of so much US Government borrowing. The Fed Chairman’s comments this week suggested he is running out of patience (and room) on the stimulus side. The politicians need to make some decisions now both here (fiscal cliff) and abroad (Greek referendum on the Euro). No doubt central bankers will keep one more round in the chamber until they really need it. Until then, we all wait.
Below is my AlphaVision™ landscape view of the 60 Day Historical Volatility and 30 Day Implied volatility. Note how most of the landscape is dark green. I usually see this when the VIX futures are trading 25 and above in the short term. Right now market volatility is pricey reflecting some of the European Debt Issues. The USA housing market is in its 4th year of a down turn. There is not much more downside there, come what may in Europe. Some homebuilders are even starting to make money again.
Take a look at HOV. There has been a nice bounce in the market this week (for what reason, except selling fatigue, I’m not sure), but the homebuilders are still trading very much at the end of a 5 year range. Use the current market and higher volatility to pick up HOV below $2 by selling August puts. If we get a runner, buy Aug 2.5 calls to create a risk reversal for a credit. As we get past the Greek Elections this week, I think this trade should catch a breeze. By selling the put, traders can rent the long position prior to the good earnings report, and decide to “buy” later.
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