Jim Strugger's Option Strategy For iShares U.S. Home Construction ETF

With the economic showing steady signs of improvement, the momentum in home sales is also picking up. MKM Holdings Derivatives Strategist Jim Strugger was recently on Bloomberg to discuss the outlook for home sales and share his trade on the iShares Dow Jones US Home Const. (ETF) (NYSE: ITB).

Steady Beginning, But Not Fantastic

"Home builders themselves have worked," Strugger said. "We wanted to be very stock specific. We wanted to own Toll and KB Home into the beginning of spring selling season. KB was trading at 70 percent of the book value. The rest of the group at 1.7 times. We wanted that through earnings, which they reported last week.

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"Overall, it's been a steady beginning of the spring selling season. Not fantastic. There's been weakness because of economic potholes in different parts of the country and also [because of] weather as well."

The ITB Trade

He continued, "What we want to do now is really roll those positions into more of a momentum trade. And we want to use ITB – the U.S. home construction ETF – to do that. With implied volatility there relatively low, we just want to look out to July and buy 30 strike calls outright. Simple. Straightforward trade. You are not paying too much for implied volatility.

"And again the issue here is we still think that there is steadiness behind home sales, but we don't want the single stock risk. We want to play more as a momentum trade," Strugger concluded.