Shorting homebuilders via pair trades carries risks
The case was argued that shorting homebuilders like Lennar as part of a long S&P 500 pair trade carries significant risk due to improving technicals in the housing sector.
The argument
The speaker cautioned that homebuilders are showing broad technical improvement, meaning they are not a straightforward short. Additionally, major custodians like Charles Schwab and Fidelity have recently limited margin capacity for long-short strategies, signaling institutional caution.
The thesis, stress-tested
✓ What validates it
- ✓Lennar and the broader homebuilder sector breaking key technical resistance levels to the upside
▸ Risks discussed
- ▸Homebuilders could continue to move higher while the broader S&P 500 declines
- ▸Margin limitations imposed by custodians on long-short strategies
Hear it yourself
"So we custody our client assets at Charles Schwab. And Schwab and and several of the other custodians, I think Fidelity as well, have, limited the margin, capacity of long short strategies."
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