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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: benwood who wrote (69567)9/9/2006 1:36:16 AM
From: mishedlo  Read Replies (2) of 110194
 
Does the builder own it or is there financing somewhere?
This is actually getting interesting.
Let's assume the builder does own it outright with no other obligations.

In that situation I suppose the builder did sort of sell a covered call, but oddly enough one the builder is desperately hoping will be called away (much more desperately than say someone selling a covered call on an equity).

Now what about the situation where the builder is just building, the bank or someone else is providing financing, and the builder sells that call? That too is a weird sort of thing, perhaps more akin to selling a naked call, but once again (and in this case it is even more peculiar in theory) that the builder is even more desperately hoping the price goes up and the call is executed.

Somehow this does not seem like the normal mentality of either a covered call or a naked short call. The seller of a naked call typically hopes the option goes to zero and the call is NOT exercised.

The seller of a typical covered call typically hopes the stock does nothing and the premium is collected. That sure is not the case with home sells.

This is all kind of weird, but it seems to me that perhaps there is merit to the "covered call idea" except it is not the builder at risk, but the lender and the builder is gambling with the lender's money. The other difference as I noted is in the extreme desire to be called away.

Perhaps its just all part of ponzi financing.

Mish



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