Pulte Group, Inc - PHM - close 8.31 change -0.11 stop 9.05

Target(s): 7.20, 6.75
Key Support/Resistance Areas: 9.00, 8.00, 7.00, 6.50
Current Gain/Loss: Unopened
Time Frame: 1 to 3 weeks
New Positions: Yes

Company Description:
Pulte Homes, Inc. (Pulte Homes) is a holding company whose subsidiaries engage in the homebuilding and financial services businesses. The Company’s direct subsidiaries include Pulte Diversified Companies, Inc., Del Webb Corporation (Del Webb), Centex Corporation (Centex) and other subsidiaries engaged in the homebuilding business. The Company also has mortgage banking operations, conducted through Pulte Mortgage LLC (Pulte Mortgage), and title operations. Homebuilding, the Company’s core business, is engaged in the acquisition and development of land primarily for residential purposes within the continental United States and the construction of housing on such land targeted for first-time, first and second move-up, and active adult home buyers. (source: company press release or website)

Why We Like It:
We are adding a short candidate to the model portfolio to balance our positions a bit. I consider this a more aggressive play so please use small position size. PHM saw some unusual option activity on the put side across various strikes in the November, December and January months. In total, 24,000 contracts traded and 75% of them were bought on the ask. PHM is having problems with their debt and their costs to borrow are rising as their credit spreads widen. I suggest we initiate a small short position now and target a move towards the 2008 lows which are about -10% and -13% lower than current levels. Our initial stop will be above the recent highs. I have provided a weekly chart below.

Note: We will most likely experience some volatility in this trade so please use appropriate position size to manage risk. I also like an option play here so that your risk is better defined.

Suggested Position: Short PHM stock at current levels

- or -

BUY the December $8.00 PUT, current ask $0.54

Annotated weekly chart:

Entry on October 21, 2010
Earnings Date 10/28/10 (unconfirmed)
Average Daily Volume: 4.5 million
Listed on October 16th, 2010