Options Active In Homebuilders $XHB, $BZH, $HOV, Existing Home Sales Up 6.8% In March, Inventories At 8-Months

Options were active in XHB (Homebuilders ETF), BZH (Beazer Homes) and HOV (Hovnanian) today. This comes a day after hedge fund manager John Paulson said in a conference call that home prices will increase 8-10% in 2011.  His $30 billion hedge has been involved in distressed real estate since early 2009 (or earlier) through a real estate recovery fund.  His firm was also bidding on bankrupt TOUSA land in February (Reuters). If you can scoop up decent bankrupt land for 20 cents and sell it to a homebuilder for 40 cents it's a decent play. I also posted a chart of lumber yesterday which is up 93% over the year, see my previous post with a chart. Here's the existing home sales press release, BZH, HOV and XHB simple technical analysis and the option action. *I embedded a video with Lawrence Yun (NAR chief economist) explaining the existing home sales data in depth.

Today home existing home sales rose 6.8% in March from February.
"Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, rose 6.8 percent to a seasonally adjusted annual rate of 5.35 million units in March from 5.01 million in February, and are 16.1 percent above the 4.61 million-unit level in March 2009.

Lawrence Yun, NAR chief economist, said it is encouraging to see a broad home sales recovery in nearly every part of the country, with two important underlying trends. “Sales have been above year-ago levels for nine straight months, and inventory has trended down from year-ago levels for 20 months running,” he said. “The home buyer tax credit has been a resounding success as these underlying trends point to a broad stabilization in home prices. This is preserving perhaps $1 trillion in largely middle class housing wealth that may have been wiped out without the housing stimulus measure.”

Total housing inventory at the end of March rose 1.5 percent to 3.58 million existing homes available for sale, which represents an 8.0-month supply at the current sales pace, down from an 8.5-month supply in February. Raw unsold inventory is 1.8 percent below a year ago, and is 21.7 percent below the record of 4.58 million in July 2008.

“Foreclosures have been feeding into the inventory pipeline at a fairly steady pace and are being absorbed manageably,” Yun said. “In fact, foreclosures are selling quickly, especially in the lower price ranges that are attractive to first-time home buyers.”" [read the full release at Realtor.org]

Charts of the home-builders look very interesting on a technical basis.  I posted about XHB, ZION and $LUMBER on February 12 when they were sitting right at ceiling resistance waiting to bust.  Both stocks saw a decent upside catalyst above that level (ZION is up 63%, XHB up 22.5% in two months).  I presented option activity but the chart was the main tell.  Today, I saw activity in XHB (hat tip OptionRadar), BZH and HOV. First off look at the charts.  XHB is riding a ceiling breakout, HOV is riding a breakout and BZH is RIGHT at ceiling resistance.  Will BZH join the party too?  The relative strength index is very strong in all names (above 70) but be hedge the strength with caution.  The MACDs are also riding above water.  Not quite sure where I'd fight these things at, but I'd be happy to realize 22.5% in 2-months.  The next resistance level for $XHB is $21-22, for $HOV $8 and BZH is at an inflection point.

According to CrimsonMind today, someone sold 50,000 January 2011 $20 $XHB Calls for double what they paid for and bought 50,000 of the higher strike $22.50 for 0.60 (out of the money).  Someone also bought 3,000 of the November 2010 $7.50 BZH calls for 0.63 and sold the $5 puts for 0.70 (free trade).  The same exact trade happened in HOV [Source: 4/22 CrimsonMind Activity Watch].  So what's up.  Is someone betting on an out of the money home run on XHB by January?  A BZH breakout by November?  Or are these trades just hedges on short positions?  It's crazy that 2 years ago the homebuilders were living in hell.  Remember, there's a 50/50 chance of another housing downturn (Robert Shiller).

XHB (SPDR S&P Homebuilders Index ETF)

HOV (Hovnanian Enterprises)

BZH (Beazer Homes)