Price Forecast:

Bullish Case: A bullish scenario for TPH revolves around stabilization in housing demand and ongoing economic growth, suggesting potential price recovery. Factors include upcoming land developments and consistent earnings improvements, with a supportive housing market indicated by low mortgage rates.

Bearish Case: Conversely, bearish pressure may arise from rising interest rates and increased market volatility, which could suppress demand for new homes. The TPH implied volatility suggests significant market caution, as high IV levels historically correlate with sell-offs.

Potential Outcomes:

1. 40% chance of recovery as housing demand strengthens post-pandemic.
2. 35% chance of minor price drop due to interest rate hikes.
3. 25% chance of sideways trading reflecting mixed market signals.

Trading Oracle: Consider a bull call spread strategy, buying TPH 40.00 C and selling TPH 45.00 C. Given high IV, this trade exploits potential upward movement while limiting risk. Additionally, a long volatility play leveraging current elevated IV levels can yield significant returns. Focus on January and February expirations to capitalize on short-term volatility contraction.

December 20, 2024