Bullish Option Play In This Homebuilder Stock Could Earn $260 | IBD | Summary and Q&A

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February 14, 2023
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Investor's Business Daily
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Bullish Option Play In This Homebuilder Stock Could Earn $260 | IBD

TL;DR

Learn how to implement a bull call spread trading strategy using options to get bullish on Lennar's stock.

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Questions & Answers

Q: What is a bull call spread trading strategy?

A bull call spread is a risk-defined options strategy in which an investor buys a call option and simultaneously sells a call option with a higher strike price. It allows for a bullish position while limiting potential losses and gains.

Q: Why is Lennar currently considered a bullish stock?

Lennar is trading above a 5% buy zone, has been consistently trading above its 21-day line, and exhibits double-digit growth in earnings and sales. It also holds a high rank in the residential and commercial builders industry group.

Q: Why would someone choose a bull call spread instead of buying the stock?

Buying a bull call spread allows investors to benefit from a bullish outlook on the stock without the need for substantial capital investment. It also limits potential losses and gains, providing a risk-defined approach.

Q: What is the risk associated with the bull call spread on Lennar?

The maximum loss potential for the bull call spread is the premium paid, which in this case is approximately $240. If Lennar's stock closes below $105 on the expiration date, the trade would realize the maximum loss.

Summary & Key Takeaways

  • Lennar is a home construction company whose stock is currently trading above a 5% buy zone and showing strong bullish momentum.

  • While Lennar's recent earnings and sales growth have decelerated, it still exhibits double-digit growth and is a leader in the residential and commercial builders industry group.

  • To take a bullish position on Lennar without buying the stock, a bull call spread strategy is introduced using options.

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