Don't Let a Good Trend Go To Waste

It is time to collect more cash on this strong sector and company.

Homebuilders remain one of the strongest sectors in today's market. iShares Home Construction Fund (ITB) is up 28% in 4 months, nearly three times as much as the SP500.

As discussed in past posts, homebuilders remain incredibly strong with two major tailwinds. First is ultra low interest rates and second the continued migration from Urban to Suburban locations which will require new homes built to meet the demand.

Today is another opportunity to take advantage of Lennar (LEN). The most recent quarter showed the company delivered 13,800 homes with a back log of almost 20,000 valued at around $8 billion. The company is remaining disciplined and reported its highest profit margin over the last 8 years of 11%.

The company has strong support at its last breakout point of $65 per share with additional support of the 200 day moving average at $63.

The share price is having a normal pullback after such a strong move higher off the March lows.

Trade details:

Sell to open the December 18 $67.50 LEN put for $2.50 using a limit order. You will be paid 3.7% of purchase obligation upfront for agreeing to buy shares at a discount to recent trading prices.

At expiration if shares are above $67.50: put sellers will keep the $2.50 for a 26% annualized return.

At expiration if shares are below $67.50: put sellers will buy shares at about 13% discount to yesterday's closing price including the premium received. You will now own 100 shares for ever put sold and can turn around to earn more income buy selling covered calls.

For protection use a stop loss at $57.50. You will realize a loss of 11% from your adjusted cost basis of $65 ( 67.50 - 2.50). Shares will be below the 200 DMA and below the June consolation lows.

As long as the uptrend remains in place, Lennar is a great company to generate option income. Take advantage of the pullback and earn more cash.

Divider provided by barge

Disclosure: I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. The information provided should NOT be considered advice. The topics discussed are risky and have the potential to lose a substantial amount. I am not an investment professional and therefore do not offer individual financial advice. Please do your own research before investing.

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