The USA Today, the Wall Street Journal, and the New York Times have all run articles recently on the likely fate of the worldwide housing market. The narrative is fairly similar: Home prices are falling after a decade of double-digit increases in some of the world’s hottest housing markets.
Audio Podcast:
An audio podcast of this article is available at: poweropt.com/podcasts/2007_10_23_WorldHousing.mp3
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The articles go on to report the European Central Bank has reported they’re tightening standards on mortgages, houses are selling for less than the owner paid and, in short, the sky is falling. It should be noted that Japan is the one developed country not seeing a housing bubble.
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So the natural presumption is Lenders in these markets stock prices will be greatly affected by this downturn. The difficulty may be identifying specific lenders for these markets and suitable financial tools to take advantage of this presumption.
The search engine at PowerOptions has a great feature to let an investor identify sectors. In this case, an investor can run a search looking for bear call credit spreads and bear put debit spreads in the Foreign Money Center Banks and Foreign Regional Banks sectors listed on PowerOptions‘ SmartSearchXL sector drop down menu.
>From here, we can vet the companies. One of the companies coming up in the search is the Swiss Bank UBS. If we take a quick look at the profile, provided via a link on the search results, we find the bank is primarily engaged in wealth management and does not seem to be heavily engaged in mortgage lending.
Reading further down the list, we find ABM Amro Holding (ABM). This is a Dutch company who offers consumer banking, commercial banking, merchant banking, asset management, and residential mortgage lending. The company is around the top of their 52 week range and seems to have very strong fundamentals. It may not be the best choice to short, but serves nicely as an illustration of how these tools can shorten the length of a search for viable option trades.
Without the search, we would still be typing the phrase “European Lending Companies” into Google hoping to find a suitable candidate.
Some of the other stocks on the list are the Royal Bank of Canada (RY), Deutsche Bank (DB) and Banco Itau Holding (ITU) of Brazil. BPOP is the symbol for Popular Inc., a lender based in Puerto Rico. BPOP’s price largely followed the deflation experienced in the US lending market.
Potential Trades:
Here is the list of trades found using the steps described above.
| Bear Put Debit Spreads – Foreign Financial Sector | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Symbol | Last Price |
Sell Option |
Expire Info |
Bid |
Buy Option |
Expire Info |
Ask |
Pot Ret % |
Net Cred |
Break Even |
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| UBS | 54.47 (-0.05) | UBSMK | 08 JAN 55.0 (88) | $2.60 | UBSML | 08 JAN 60.0 (88) | $6.20 | 38.9 | ($3.60) | $56.40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| UBS | 54.47 (-0.05) | UBSWK | 07 NOV 55.0 (25) | $1.65 | UBSWL | 07 NOV 60.0 (25) | $5.80 | 20.5 | ($4.15) | $55.85 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| IBN | 56.11 (+2.70) | IBNWL | 07 NOV 60.0 (25) | $4.70 | IBNWM | 07 NOV 65.0 (25) | $9.20 | 11.1 | ($4.50) | $60.50 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Bear Call Credit Spreads – Foreign Financial Sector | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ABN | 53.73 (+0.19) |
ABNKJ | 07 NOV 50.0 (25) |
3.5 | ABNKK | 07 NOV 55.0 (25) |
0.25 | 185.7 | 3.25 | 53.25 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ABN | 53.73 (+0.19) | ABNLJ | 07 DEC 50.0 (60) | 3.6 | ABNLK | 07 DEC 55.0 (60) | 0.45 | 170.3 | 3.15 | 53.15 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BPOP | 10.73 (+0.03) | BQWLB | 07 DEC 10.0 (60) | 1.35 | BQWLV | 07 DEC 12.5 (60) | 0.5 | 51.5 | 0.85 | 10.85 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RY | 55.72 (+0.52) | RYKJ | 07 NOV 50.0 (25) | 5.9 | RYKK | 07 NOV 55.0 (25) | 2.25 | 270.4 | 3.65 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ITU | 26.46 (+0.67) | ITULC | 07 DEC 15.0 (60) | 11 | ITULW | 07 DEC 17.5 (60) | 9.4 | 177.8 | 1.6 | 16.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ITU | 26.46 (+0.67) | ITUKX | 07 NOV 22.5 (25) | 3.9 | ITUKE | 07 NOV 25.0 (25) | 2.3 | 177.8 | 1.6 | 24.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ITU | 26.46 (+0.67) | ITULD | 07 DEC 20.0 (60) | 6.5 | ITULX | 07 DEC 22.5 (60) | 4.9 | 177.8 | 1.6 | 21.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DB | 125.04 (-0.03) | DBKD | 07 NOV 120.0 (25) | 7.1 | DBKE | 07 NOV 125.0 (25) | 4.4 | 117.4 | 2.7 | 122.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DB | 125.04 (-0.03) | DBLD | 07 DEC 120.0 (60) | 9.1 | DBLE | 07 DEC 125.0 (60) | 6.6 | 100 | 2.5 | 122.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DB | 125.04 (-0.03) | DBKD | 07 NOV 120.0 (25) | 7.1 | DBKF | 07 NOV 130.0 (25) | 2.3 | 92.3 | 4.8 | 124.8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DB | 125.04 (-0.03) | DBLD | 07 DEC 120.0 (60) | 9.1 | DBLF | 07 DEC 130.0 (60) | 4.4 | 88.7 | 4.7 | 124.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
For more information about how to identify and research great option trades, visit the PowerOptions website. There you will find the data you need to make quick, clear, and informed decisions. You can trade knowing you have found the best investment. Also, PowerOptions will allow you, with a few quick clicks, to quickly and accurately compare trades. PowerOptions‘ premium customer support is second to none in the industry. They can be easily contacted when you need them at their toll-free number to answer customer questions. Call them now toll free at 877-992-7971.
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[tags] ABM, ABM Industries Inc, DB, Deutsche Bank AG, ITU, Banco Itau Holding Financeira SA, RY, Royal Bank of Canada, bear call credit spreads, bear put debit spreads, covered call investment strategy, investment strategy, poweroptions [/tags]