With plenty to choose from on the earnings calendar this week, we’re going to turn to the homebuilders, a sector that has struggled to say the least. Ryland Group (NYSE:RYL) reports on Wednesday after the close and the company’s prospects appear murky at best.

As the housing sector has suffered over the past couple of years, RYL has been a marked underperformer. In fact, since the beginning of 2010, the stock has lagged by 25% the iShares Dow Jones U.S. Home Construction Index (NYSE:ITB), an exchange-traded fund that includes RYL among its top 10 holdings.

While revenue has fallen for three straight quarters and margins continue to shrink, analysts still can’t go low enough with their earnings estimates. Over the past four quarters, the company has averaged a loss 78% wider than the consensus estimate. Now, analysts project a loss of 21 cents a share, less than half the loss of a year ago and the smallest loss in six quarters. That sounds like elevated expectations — a danger sign in our book, given the size of recent misses.

Sentiment toward RYL is pessimistic, as it should be considering the shares have lost more than 6% this year. But pessimism is hardly rampant, as the put/call ratio is falling and five of 12 analysts still consider RYL a buy. That tells us there’s plenty of selling potential remaining.

With housing data mixed at best, the sector has not yet found a solid enough footing for a persistent recovery. RYL has missed the past four estimates by a wide margin and has dropped an average of nearly 3% in the week following each of these reports. We expect more of the same post-earnings misery this quarter as well. Buy the Aug. 16 put for under a buck.

Have a great trading week.