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Tom Preston Turns a Bearish Housing View Into a Cheap Spread.
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ticker lesson
Breakdown
0:00VNQ· ticker
VNQ — bearish due to rising rates
- Real estate ETFs may drop as rates climb
- VNQ has decent open interest at 2000 strikes
- Markets aren't awful but not S&P-level
2:15IYR· ticker
IYR — bearish with spread potential
- Fair open interest in IYR puts
- Spread idea: buy 106 puts, sell 105 puts
- 47 cents credit, 64% probability of partial profit
2:16XLR· ticker
XLR — low open interest, wide market
- XLR has almost zero open interest
- 49-day options show wide market
- Bearish ideas but limited liquidity
2:17IR· ticker
IR — bearish on housing fundamentals
- Bearish on housing due to rate hikes
- Individual names like LAR are hard to trade
- ETFs offer better liquidity than individual stocks
2:18lesson
Put spread theta mechanics
- Buy 106 puts, sell 105 puts for 47 cents
- Positive theta from extrinsic value growth
- Negative delta at -10, 53% max profit
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