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A Tactical Trade Idea For the Homebuilders (ITB) Following Lennar (LEN) Downgrade Today & Ahead of Economic Data

Published on December 4, 2025

Jeff Jacobson

The Lennar (LEN) downgrade today at JP Morgan caught my eye, especially after the main homebuilder etf (ITB) has rallied ~ 15% to potential resistance just since Nov 18^th. Looking at LEN specifically, they are expected to report earnings on 12/16 after the close. The downgrade comes after the nearly 20% rally off the lows, and less than two weeks until they report. Recent history suggests investors should use caution when playing LEN , and the other builders, into earnings as the stock has now traded lower the last NINE times they have reported. With a 10% weighting in ITB, LEN has also shown that a negative move on earnings can (and has) impacted the etf to the downside as well (ITB has declined by 2.2% the last 5x LEN has reported).

The main homebuilder etf (ITB) with a nearly 15% rally off the November lows right into possible resistance

A graph on a black background

AI-generated content may be incorrect.

We saw ITB come under pressure as yields moved higher in Sept and Oct. Could start to see the same type of reaction should yields continue higher

I also like the setup to tactically add ITB puts here for Dec 19^th expiry as we will also get a ton of economic data between now and that date as well (PCE, PPI, JOLTS, FOMC rate decision, Nov Payrolls and BOJ rate decision). We could see some rate volatility (especially higher) as we digest the data and a move higher in yields (something that Dennis and the Portfolio Strategy team have been suggesting could happen) could start to weigh on the interest-rate sensitive builders. We have already seen 10-year yields move a bit higher off their lows, and thus far the builders haven’t been negatively impacted. On the two prior moves higher in yields (Sept and Oct) we saw ITB decline by ~ 9% and 11%, so should we see a move back to 4.2%+ I think we can expect a knee-jerk pullback in the group (especially after the strong bounce they just had).

Given the sharp moves we have seen in the sector over short periods of time, coupled with implied vol on the December puts having moved lower as the market has rallied and VIX has come in, I favor owning puts outright at this time as my tactical hedge/trade.

Trade:
Buy ITB Dec 19^th 103 puts for $1.70 (ITB 105.85 ref)

Trade Details:

Buying the short-term puts for the homebuilder sector following sharp rally into potential resistance
Lennar (LEN) earnings on 12/16 could once again be a negative catalyst for the group (shares have declined the last 9x they reported and they caught a downgrade today) as it is the 2^nd largest weight in ITB @ 10%
Higher yields could also start to weigh on the sector, much like they did in Sept and Oct when we saw 10-year yields move from ~ 4% to 4.2%
A slew of economic data between now and 12/19 expiry could also be a potentially negative catalyst for the sector
Puts can be bought to hedge exposure to the sector, or as a limited-risk bearish bet given very favorable setup
Please contact me or the 22V sales team for updated pricing and execution capabilities

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