Sizing Up Real Estate During a Historically Bullish Month

Those looking to trade options on the real estate sector could consider buying premium on IYR, and selling it on SPG

Jul 11, 2017 at 10:47 AM
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The iShares U.S. Real Estate ETF (IYR) has had a choppy 2017. After hitting a year-to-date peak of $81.94 on June 26, the exchange-traded fund (ETF) pulled back to a trendline that's connected a series of higher lows since December, and were last seen trading at $77.81. This area also coincides with a 38.2% Fibonacci retracement of IYR's 2016 rally -- while just below sits the fund's year-to-date breakeven level of $76.94 -- and could help support the shares. 

iyr weekly price chart

Also working in IYR's favor is the fund's historically bullish performance during the month of July. According to data from Schaeffer's Quantitative Analyst Chris Prybal, IYR has averaged a July gain of 2.3% since its inception -- second only to April in terms of its best monthly showing. Plus, data from Schaeffer's Senior Quantitative Analyst Rocky White shows IYR has been one of the best ETFs to own in July, averaging a 2.5% monthly return over the past decade, and boasting an 80% win rate.

In fact, real estate names dominate the list of best stocks to own in July, with IYR component and real estate investment trust (REIT) Simon Property Group Inc (NYSE:SPG) near the top of the pack. In the last 10 years, SPG shares have averaged a monthly gain of 3.7%, and have turned in a positive performance 90% of the time. Nevertheless, SPG shares have been struggling in 2017, down 5.2% since the start of the month, and off 13.7% year-to-date to trade at $153.30.

Those looking to trade options on the real estate sector in the near term could consider buying premium on IYR or selling it on SPG. Specifically, IYR's Schaeffer's Volatility Index (SVI) of 12% ranks in the 24th percentile of its annual range, meaning low volatility expectations are being priced into the fund's short-term options -- a potential boon to options buyers. Conversely, SPG's 30-day at-the-money implied volatility of 23.4% ranks just 10 percentage points from a 52-week peak, pointing to relatively expensive premiums on the stock's near-term options.

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