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Hedge fund manager John Paulson recently made the call for a “V” bottom in housing, so it was of little surprise to see that Beazer Homes USA Inc. (NYSE: BZH) was a new position for his hedge fund. And this morning, the stock was upgraded by Citigroup Inc. (NYSE: C) to “buy” from “hold” based on valuation.
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Beazer seems like the play in the homebuilding sector, but rather than chasing the stock, which is up 8% today, the smarter play may be a synthetic stock purchase. Instead of placing a limit order to buy BZH on weakness, you can write put options.
At $5.67, BZH is currently up around the highs of the past five days, but shares did dip under $5 at the peak of selling yesterday.
Rather than placing a $5 limit order to buy the stock, you can sell the BZH June 5 Puts (BZH 100619P00005000), which have a current bid/ask of 20 cents/25 cents.
That way, you collect the premium today while volatility is still elevated, and you could still end up long the stock on a pullback. If the stock gets put to you at $5, you are actually in at $5 minus the premium you collected when you sold the puts.
Of course, there is no guarantee the stock will pull back before June expiration, but, in that case, at least you collected some premium.
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