Price Forecast:

Bullish Case: With anticipated rate cuts, REITs may attract yield-seeking investors, stimulating significant price recovery, leveraging historical positive returns over longer holding periods as indicated in the price return surface.

Bearish Case: Economic volatility could exacerbate vacancy rates in high-risk areas, triggering a sector-wide sell-off as historical trends suggest declines in returns during downturns.

Potential Outcomes:

• 1. 40% chance of rate cuts boosting REIT demand significantly.
• 2. 30% chance of rising vacancies leading to declining valuations.
• 3. 20% chance of regulatory changes impacting access to funding.
• 4. 10% chance of a sudden market crash affecting all sectors.

Trading Oracle: Adopt a bullish debit spread on ALPS Active REIT (REIT) with long calls, aiming for significant upside as rate cuts materialize. Focus on options with 6-12 months expiry to leverage anticipated market shifts while maximizing reward-to-risk ratio in a volatile environment. Avoid bearish strategies unless market sentiment turns sharply negative.

November 22, 2024