What Put Options are you currently holding?

[CarreraS2]

Curious to see what the wise pelicans are thinking.

Expiration date, what you paid per share, and strike price.

[tabs]

SNIFFFFF.....SNIFFFF...AHHHHH!!!!!!!

[turbo6bar]

OK, I gots nothing to hide.

Streetracks Spider Homebuilders ETF, ticker XHB

XHBUL, Sept 06, paid $1.20 and $1.45 per contract, $38 strike
XHBUI, Sept 06, paid $1.35 and $1.45 per contract, $35 strike
XHBXJ, Dec 06, paid $1.25 and $1.80 per contract, $36 strike

Citigroup
CUI, Sept 06, paid $0.45 per contract, $45 strike

I plan to dip into more Homebuilder put options on any signs of a bounce, and I will begin liquidating the Sept put options in about 6-8 weeks, and grab some Dec puts. Take a look at the components of XHB. Pull up charts for the individual builders. There is still plenty of sky left for the freefall. For example, LEN is $45ish now. In Jan 03, it was a $25 stock. TOL is $27 now. It was a $10 stock in Jan 03. KBH is $47 now, $20 in Jan 03. SPF is $26, and $12.50 in Jan 03. Of course, I don't expect to see these stocks drop in a matter of months (making my current options gold), but I can certainly nibble on future options as they become available.

Be aware, this is all play money. I am perfectly aware the market may kick my ass, but right now I feel the odds are with me. If the economy hiccups, though, I may throw some serious cash down.

[CarreraS2]

Thanks, that's interesting.

I'm still kicking myself for not buying the puts on Toll like I talked about here when Toll was at $70-80. I just wonder if the boat has been missed for TOL and XHB. I tend to not think so - I can easily see TOL, for example, being a $15 stock before Jan 08. $6K in puts of Jan 08 TOL at $15 strike would be a very nice payoff! But it's not the no-brainer that it was when TOL was at $70-80.

There's a great one page article in the current issue of Forbes, titled "Implosion." I left it at the office, I wish I could post it, I'd be really interested to see who disagrees with it, and why.

[CarreraS2]

Here's the Forbes article. Comments?

"With inventories high and sales falling, the ratio of inventory to sales flow is rising. Inventories for both new and existing homes have jumped from 3.5 months in 2003 to 5.8 months and 6 months, respectively. It is reasonable to expect those ratios to climb into the 6-to-8-month range of the real-estate-troubled early 1990s.

Already inventories since last year have jumped 91% in Boston, 236% in Miami and 149% in Los Angeles. Asking prices have been cut on one-third of listings in Boston, San Diego, Sacramento, Los Angeles and Miami. Nationwide median prices will probably fall at least 20% before the break is over. It will take a 35% fall to return prices to their long-run link to the Consumer Price Index; markets overshoot on the downside as well as the up.

Even a 20% price decline will be devastating for many homeowners. On average, those with mortgages have 37% equity in their abodes. Of those who borrowed or refinanced in 2005, 29% have zero or negative equity, calculates First American Real Estate Solutions.

A house-price collapse will be far worse than the 2000--02 bear market on Wall Street and will bring a serious global recession."

[tabs]

This is something I have been wondering about for quiet awhile. I have come to no definate conclusion, so I havn't mentioned it. But here goes my train of thought.

The 1990 RE recession was quiet brutal lasting till 1997. That was followed by the worst Bear Stock Market since the Great Depression (2000-2005). Now we are faced with a NEW RE Bubble.

The question is : How Bad will this new housing recession be?

WILL THE NEW RECESSION BE A REFELCTION OF THE SEVERITY OF THE 2000 STOCK MARKET CRASH. OR WAS THE 2000 STOCK MARKET CRASH A REFLECTION OF THE 1990 RE RECESSION AND WE ARE NOW CUTTING A NEW TRAIL WITH THIS RECESSION?

[tabs]

If you are to gauge the severity of the coming RE recession, I would guess that one has to look at how far out of the norm or how excessive the RE market became.

If this is the case the charts that were presented in an earlier Thread will clearly show how much each area will have to fall to get back into equalibrium. As previousily stated in SOCALs post markets will over shoot both to the upside and the downside of the equation.

[turbo6bar]

The severity of the upcoming downturn may be a reflection of credit availability. Without easy money, the party ends.

Buffett says:
"At the start of the party, the punch is flowing and everything's going well, but you know at midnight it's all going to turn into pumpkins and mice," he said. "People think they'll be able to get out just before midnight, but everyone else thinks that too."

"The problem is that, in commodities there are no clocks on the wall," he added.

Wow, the Forbes article mentions shorting XHB. That makes my day.

Consider in 2005, 40% of existing home sales were for second homes or investment. The historical average is 9-10% via David Lareah. There is little probability of a soft landing when volume drops off by 1/3. Everywhere I look, volumes are growing. Everywhere. Inventory levels are an early warning of the impending tsunami. You can run for higher ground, or you can sit and stare at the pretty waves on the horizon.

[tabs]

Another question is: Will a recession in the housing market bring on a Global recession.

My answer would be not necessarily. There are a LOT of corporations that are sitting on mountains of cash eg have great balance sheets. Some are buying back their stock, but for the most part they are going to have to put that money to work at some point in time. Also where is all the Investment money in the world going to go, once tht U realize that both the Housing and Bond markets are depleted. If interest rates start to decline that will provide stimulus to the economy and business will revive. I don't simply believe that housing alone can bring the economy down when the fundlementals are so strong.

[tabs]

One other thing companies don't generally buy back their stock if they think it is a. fairily priced b. over priced. They generally buy back their shares when they think that they are cheap. The list of major corporations buying back their shares is quiet long.

[GDSOB]

Originally posted by turbo6bar
Consider in 2005, 40% of existing home sales were for second homes or investment. The historical average is 9-10% via David Lareah. There is little probability of a soft landing when volume drops off by 1/3. Everywhere I look, volumes are growing. Everywhere. Inventory levels are an early warning of the impending tsunami. You can run for higher ground, or you can sit and stare at the pretty waves on the horizon. [/B]

New construction is OVER___BUILT!

You'd be amazed at the number of existing homes on the market that are vacant. gonna take a while for the snake to digest this elephant...

[tabs]

This is anedotal evidence. My now ex-neighbor moved to a nice new Pulte home on Silverstone Golf Course in NW LV. He paid 750K for 3400 sq ft on a 1/4 acre lot. He has put 80K into the house for decorating, pool and landscaping.

I have seen 3 houses in the development that have For Sale signes on them for 5 months now. My neighbor told me that a further 4 or 5 houses in a row on his street are going to be for sale with in a short period of time. The asking price is right around 1M, but nothing is moving.

I made my neighbor aware of the impending RE bust before he bought the home, however his plan is to stay in the house till his children are done with HS, which is 10 years away. So he will fine.

[turbo6bar]

Yep, new home inventory is ~600k, which blows away previous records. We are looking at a bust that rivals all others.

tabs, home builders were buying back stock in summer 2005. At the same time, insiders were exercising options and selling. Then, we have companies issuing junk bonds and using the windfall to buy back stock. Fools looking for high yields (6%?????) in the bond market eat up the ***** bonds like it was apple pie.

re: companies sitting on massive piles of cash. They sit on the cash because the return on investment is piddly. With a slowing economy on the horizon, companies surely won't be investing in growth.

As far as the housing market taking the economy down, calculate the effect of the consumer. The American consumer is a huge influence on the world economy. The GDP of CA rivals nearly every country in the world, so when Johnny gets the measles, do you think he will be thinking about that shiny new Chinese bicycle or German leather seats for his early 911 hot rod? No, he'll be in bed, constantly calling for chicken soup from his mommy It will happen because I say so.....Oh, wait. I thought I was someone else.

[turbo6bar]

I could really use a bounce in the homebuilders right now. The portfolio of XHB put options is up 120% before trading fees. I'm feeling stupid for only dropping $5600 in the options. I could use a small bounce to average in more bucks.

Interesting article here, http://www.frontlinethoughts.com/pdf/mwo060906.pdf
linked from blogger site, http://www.xanga.com/russwinter

"In the last economic expansion from Apr 1991 to March 2001 there were 23.96 million jobs created, and of those 1.64 million (or 7%) were in housing-related areas. In the current expansion which began in late 2001, there have been 4.22 million nonfarm jobs created, and of those 844k (or 20%) were housing-related. Tacking on the new series that includes 'Specialty Trade Contractors: Residential Construction,' the number is 1.34 million or fully 32% of the job creation in housing related sectors. This area has started to slow - but the declines haven't even started yet and this is after we've seen sequential slowing in the nonfarm numbers for three months in a row (200k in February, 175k in March, 126k in April and 75k in May)."

[jyl]

As of 2004, 9.9% of US employed were in construction and real estate. Was 9.3% in 2000. Maybe it is >10% by now.

http://www.census.gov/prod/2005pubs/06statab/labor.pdf

I realize this includes commercial, not just residential. My impression is, commercial RE is stll doing well, not in a bubble (but I don't have any info - anyone know?).

But still, seems like employment is going to get pretty tough for say 5-7% of the US population. Might move unemployment from current 4% to - what, 5-6%?

[turbo6bar]

SoCal, I added 10 contracts, XXJUB 28 Sept 06 at $0.50/contract. Money burning a hole in my pocket. What can I say?