Short U.S. Real-Estate

Well, nothing particularity interesting in news today.

I have place a new trade in the last minutes of Friday trading. I bought IYR ATM puts. IYR is iShares Dow Jones US Real Estate ETF.  It’s a pure sector leaders/laggards play. We are experiencing selectivity in the stock performance as a consequence of flight to quality. Broad financials failed to reach new highs and having all that in mind I think real estate over-performed in recent period.

Fundamentally speaking the sector has its share of problems: occupancy rates falling, assets acquired at boom prices on massive leverage, secondary market activity depressed, scarce credit availability, rich valuations… Price wise IYR reached new 52 weeks closing high. The REIT’s trade at 10-15% percent premium to NAV on average. The catalyst for the last weeks out-performance was a successful underwriting a new CMBS issuance by the BofA and some M&A rumors, nothing fundamental of importance.

The best case scenario here is massive new equity issuance resulting in a massive dilution enabling investors (REIT’s) pick up all defaulting properties/companies and remove them from the markets. So, even a fundamental best case scenario results in a successful short trade.

To sum up, pretty nice short play taking in account all aspects of the sector and the trade.

Chart 1. iShares Dow Jones US Real Estate ETF (IYR)

Source: StockCharts.com

Source: StockCharts.com

, ,

This entry was posted on Monday, December 7th, 2009 at 7:49 am and is filed under Markets. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

One Response to “Short U.S. Real-Estate”

  1. What others have been saying about pure real estate « Disconnected Musings of a Engineer Grad Says:

    […] http://www.taintedalpha.com/2009/12/07/short-u-s-real-estate/IYR is iShares Dow Jones US Real Estate ETF. It’s a pure sector leaders/laggards play. We are experiencing selectivity in the stock performance as a consequence of flight to quality. Broad financials failed to reach new highs and having … […]

 

Get Adobe Flash player