2 Real Estate Stocks with Cheap Options

Short-term options on Host Hotels and Resorts Inc (HST) and Simon Property Group Inc (SPG) are attractively priced

Feb 22, 2017 at 3:14 PM
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Every week, Schaeffer's Senior Quantitative Analyst Rocky White compiles our internal Sector Scorecard, ranking 40 major sectors by their potential bullish setups, based on our Expectational Analysis® method. In the top half this week is Real Estate, where 88% of the 34 components are trading above their respective 80-day moving averages. While the iShares U.S. Real Estate ETF (IYR) is lagging the broader market, with the shares up 12.5% year-over-year, several individual stocks are worth a closer look. Among the names that stand out are Host Hotels and Resorts Inc (NYSE:HST) and Simon Property Group Inc (NYSE:SPG).

Host Hotels is Underloved Despite a Strong Year

HST is off 1.2% at $18.47 today -- pulling back after tapping an annual high of $20.21 earlier in the session -- following better-than-expected fourth-quarter earnings. The shares have had a solid year, adding almost 24% over the past 12 months, and the stock is still perched comfortably above the $18 neighborhood, which has alternately served as support and resistance since last July. Nevertheless, 80% of tracking analysts rate HST a "hold" or worse. And short interest represents 11.2% of the equity's total float, or nearly eight days' worth of buying power, at the stock's typical daily volume. A round of analyst upgrades and/or short-covering could easily propel HST higher.

Meanwhile, call buying has been popular, with HST's 10-week call/put volume ratio of 3.01 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) seated above 79% of the past year's readings. But this could be a result of short sellers picking up calls to hedge their bearish bets. In fact, short-term options traders are at a put-skewed extreme. With a Schaeffer's put/call open interest ratio (SOIR) of 1.92 -- an annual high -- put open interest nearly doubles call open interest among options due to expire in three months or less. An unwinding of these pessimistic positions could be a boon to HST shares.

It may be an appealing time for options traders to get in on the action, too. The stock's Schaeffer's Volatility Index (SVI) of 25% is docked in the low 12th percentile of its 52-week range, while its 30-day at-the-money implied volatility (ATM IV) of 24.1% is lower than 99% of the past year's readings. As such, Host Hotels and Resorts Inc's (NYSE:HST) near-term options are pricing in historically low volatility expectations at the moment.

Analysts and Options Traders Stay Bullish on Slipping Simon Property Group

In contrast, SPG has left a lot of be desired, down 2.9% year-over-year at $184.19, struggling to overcome the $185-$188 region since late October. The shares were also rejected at the declining 100-day moving average on Tuesday. Despite this general lack of momentum, more than half of the brokerage firms following the stock rate it a "buy" or better. And short interest accounts for a mere 2% of SPG's total float. Simply said, there's plenty of room for bears to pile on, putting further pressure on the shares.

Options traders haven't shied away from bullish bets lately, either. Across the ISE, CBOE, and PHLX, the stock's 10-day call/put volume ratio ranks just 7 percentage from an annual high, at 1.74. Likewise, SPG boasts a SOIR of 0.76 -- lower than 98% of all comparable readings from the past 12 months. But like its peer above, Simon Property Group Inc (NYSE:SPG) is offering short-term options at a bargain. With an SVI of 17% and a 30-day ATM IV of 16.8% -- in the 22nd and 11th percentile of their respective annual ranges -- premium is currently well-priced, from a volatility perspective.

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