Centex Corporation (NYSE: CTX) stock is falling today along with other homebuilders after the National Association of Realtors said February pending sales of existing homes fell 2% from January. Existing home sales are considered a good indicator of the overall housing market, which means more trouble could be ahead for CTX. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on CTX.
After hitting a one-year high of $49.85 in May, the stock hit a one-year low of $17.77 in November. This morning, CTX opened at $25.90. So far today the stock has hit a low of $25.00 and a high of $26.09. As of 1:00, CTX is trading at $25.01, down $1.31 (-5.0%). The chart for CTX looks bullish and steady, while S&P gives the stock a neutral 3 Stars (out of 5) Hold rating.
For a bearish hedged play on this stock, I would consider a May bear-call credit spread above the $30 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 12.4% return in six weeks as long as CTX is below $30 at May expiration. Centex would have to rise by more than 20% before we would start to lose money. Learn more about this type of trade here.
CTX hasn't been above $30 since August and has shown resistance around $27 recently. This position could be risky if the US economy turns around quickly, but even if that happens, this trade could be protected by resistance CTX might find from its 200 day movning average, which is around $28 and falling.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in CTX.
Heinz looking good after the second quarter?
Why isn't Bank of America updating its shareholders on CEO situation?
Will Rich Ross really have a positive impact on Disney's movie operations?
