Pulte Homes and The Housing Bubble

People are in different stages of denial about the unsustainable rise in the price of homes in the United States and the unhealthy extension of credit to many highly leveraged buyers during the past three years.

Pulte was a play on this theme and I believe the trade was successful for two main reasons:

1) Correct interpretation of the negative price movement and momentum in the chart.
2) No positive news announcements either from the company specifically or the government generally (re: housing starts, home prices, etc.)

The reasonably timed entry and exit points produced a reasonable gain, although substantial risk was endured - mainly from the result of near term put option expiration and high leverage (12-1 approximately.)

Below are the charts with more detail:



I hope to chime in with another rant later tonight or tomorrow - this time focused on the real estate market and the government- then we will be ready to delve into my approach for the remainder of the year and we will finally get to live by the sword and potentially die by the sword.

I have an additional $4K of capital coming into the account in next few weeks, so things promise to be extremely exciting. As a brief preview - the probable capital allocation will be 15-25% in put options on sectors which I consider bearish, 30-50% capital allocation in sectors which I consider bullish and 25-55% capital allocation in cash - to be liquid in case of extreme bargains becoming available on the long side.

Regards,

BG