8:25am (EST)

Before we started the blog, I was doing articles for OptionsMentoring.com and was fortunate enough to write about the collapse of AIG, Bear Stearns, Merrill Lynch, the housing sector and other high-flying names that came crashing to the ground. I say “fortunate” because it was amazing to watch and I was lucky enough to write about such historical events. And more importantly, if you bought put options on some of these names on the way down, you made a lot of freakin’ money.

On August 1st, 2007 when Lennar (LEN, $10.02, up $1.21) was at $30, I was recommending buying put options as the housing market was in the midst of crumbling. Lennar was an incredible story as it fell from a high of near $60 that spring to a low of $3.42 earlier this year. In fact, here were my thoughts on Lennar as rumors of bankruptcy started hitting the housing market.

The stock broke double-digits Monday on a 14% move after an analyst upgraded the shares to Buy from Hold. The analyst went on to say that there are still problems facing the sector but the near-term news should remain positive.

We have been seeing some “green shoots” in the housing sector but let’s not forget Lennar just lost a worse-than-expected 98 cents a share for the quarter. One rule of thumb before believing any sector is out of the woods is to wait for back-to-back profitable quarters. Lennar is a long ways off but interest has been picking up in the sector.

The company is still standing and recently was able to issue $400 million worth of debt to restructure its own books. I’m not ready to buy the hype but for future reference, we can keep an eye on the November 12.50 calls (LENKV, $1.65, down $0.40) which are six months out. The June 10 calls (LENFB, $0.95, up $0.45) gained 90% yesterday and opened at 60 cents.

Again, do not take any action because the implied volatility has been inflated due to yesterday’s action. I haven’t forgot about the housing sector and have been waiting for the bottom, looking for a good entry point to go long. I still think we wait but keep Lennar on your Watch List for the summer.

Rick Rouse