HOV and Leverage

Discussion in 'Stocks' started by einai, Jun 7, 2010.

  1. einai


    Please read this in the context of the latest CC, which was very negative.

    I was thinking of selling my HOV puts today, but the more I think about it, the more I think this is the perfect short and I will hang on.

    The beauty is the negative leverage.

    Given that the housing market is obviously not recovering any time soon, and therefore that HOVs earnings will be stagnant at best, the value of the stock should really be assessed on the basis of the book value.

    Now it's negative, which is great to begin with. But it gets even better than that. Because HOV is highly leveraged.

    So when you short HOV, you're shorting a highly leveraged position in pissy US real estate.

    But it gets better: you're shorting at a time when the carrying costs of that leverage are extremely low.

    Really, it's all to good to be true, and even though I've already booked a 25% drop in the value of the stock, I think there is still a lot of downside here.
  2. Daal


    The entire sector is too high. 25x earnings and 1.7 book(overvalued book that is)
    I believe there is quite a bit of downside for them
  3. einai


    It's really just a basket of negatives masquerading as a positive.

    I.e. it's a future of sorts.
  4. einai


    HOV performing beautifully today...
  5. einai


    So I've been holding off on updating this thread for the past few days as things shook out. But I think that if HOV breaks 4.60 today and does not recover, it will be a bloodbath.

    And it looks as if it is about to do that...