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None RYL

New Calls

None today.
 

New Puts

Ryland Group - RYL - close: 66.05 chg: -3.30 stop: 68.75

Company Description:
With headquarters in Southern California, Ryland is one of the nation's largest homebuilders and a leading mortgage-finance company. The company currently operates in 27 markets across the country and has built more than 240,000 homes and financed more than 205,000 mortgages since its founding in 1967. (source: company press release or website)

Why We Like It:
The homebuilders really took a beating today. The DJUSHB home construction index lost more than 4.2%. Bears have been trying to call an end to the housing bubble for years now but this time we're finally seeing some cracks in the sector's armor. Today's sell-off was fueled by multiple issues. The largest issue concerning the homebuilders are rising interest rates. If the Federal Reserve is worried about inflation (and after today's fed governor comments it sounds like they are) then we can only expect rising interest rates from the FOMC. Rising rates (normally) pushes mortgage rates higher and that slows down the sale of homes. There already seems to be a slow down with the latest new home sales report for August showing a 10% slide. Another excuse investors used to sell homebuilding stocks was a high degree of insider selling. Normally, if insiders are selling a lot of their shares then Wall Street suspects they (the insiders) have no enthusiasm to hold them so investors follow suit and take profits. Executives for the industry say they're just diversifying their holdings. After what we saw happen with Enron and employees losing so much because their retirements were tied too much to one stock I'm not sure we can blame anyone for diversifying their portfolios. Taking a closer look at shares of RYL we believe the stock could be building a bear-flag pattern and looks ready to breakdown from its two-week consolidation. FYI: there does seem to be a bad tick on some of the charting services putting RYL's low for the day near $59.00. We are going to suggest a trigger to open this play. We want our trigger under the mid-September low so our entry point will be at $65.70. If RYL trades at or below $65.70 we'll suggest the November puts even though we plan to exit ahead of RYL's October 18th earnings report. Our target is the $60.50-60.00 range.

Suggested Options:
Readers can choose the October or November puts. We're suggesting the Novembers. Our trigger to buy puts is $65.70.

BUY PUT NOV 70.00 RYL-WN OI=257 current ask $5.80
BUY PUT NOV 65.00 RYL-WM OI= 97 current ask $3.10
BUY PUT NOV 60.00 RYL-WL OI=132 current ask $1.50
- values will obviously change by the time RYL hits our trigger.

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/18/05 (confirmed)
Average Daily Volume = 1.0 million
 

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