Trade Alert – (PHM) May 18, 2012

As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price.

Trade Alert – (PHM)

Expiration of the Pulte Group, Inc. May, 2012 $8 puts at zero

Closing Trade


expiration date: 5-18-2012

Portfolio weighting: 10%

($10,000/100/$0.05) = 196 Contracts

It is with great pleasure that I announce that our short position in the Pulte Group, Inc. May, 2012 $8 puts is now utterly worthless. They expired today out of the money. My bet that homebuilder stocks are wildly overpriced is finally starting to pay off. When the “RISK OFF” trade accelerated this week, they hit the homebuilders the hardest and the most. The homebuilders were the worst performing sector in the market this week. Apparently, other traders are belatedly figuring out that selling new homes at double the cost per square foot of the millions of existing homes on the market is not a viable business model.

By selling short the $8 puts, I was able to take in plenty of premium that provided a nice cushion for our existing long in the July $7 puts during the stock’s brief and unreasonable spike from $7 to $10.50. That protected us from the time decay and offset the small capital loss during this unpleasant time. It has done its job admirably. The profit on this trade amounts to (100 X $0.05 X 196) = $980, or 98
basis point for your notional $100,000 portfolio. We are now overall profitable on the entire (PHM) position.

We now have a clear shot at the downside for (PHM) specifically and the broader market as a whole, which will hopefully continue into next week and beyond.