Back Derivatives Strategy

As Bonds Continue to Weaken, Housing (XHB) Puts for Upcoming Earnings Season Look Very Attractive

Published on July 7, 2026

Jeff Jacobson

After rallying by ~ 26% from the May lows to the recent highs, the S&P Homebuilders ETF (XHB) has been under a bit of pressure as of late. With that being said, if we look at the spread between where XHB and the most actively traded longer-duration bond ETF (TLT) trades, it would appear there remains a decided downside risk to XHB. What is also a concern for XHB is that even after seeing weakness into the payroll report last week, bonds were still unable to rally on the “softer” jobs data. Bonds (TLT) had rallied off their May lows right to the 200-day moving average, and failed, and now we have seen a clear break below their most recent uptrend support. Given the typical relationship we have seen between XHB and TLT, this does not bode well for the housing names.

XHB appears “rich” relative to where bonds (TLT) currently trade

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TLT with a break below the recent uptrend support after stopping right at the 200-day moving average

As for XHB, it has been a very volatile sector of the market over the past year. We have already seen seven moves of at least 16% in just the past 12 months (4 up and 3 down), with the AVERAGE move being ~ 21%. Given the setup here of continued weakness in bonds, it would not be a surprise tot see the current pullback from the recent highs turn into a more “typical” decline. I also prefer XHB over the other actively traded homebuilder ETF (ITB) as it is more diversified, has already outperformed ITB by a wide margin and there is a large consumer housing component to XHB as well.

XHB has been very volatile over the past year with seven moves of at least 16%

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XHB/ITB relative spread was up 10% from the Sept lows to the June highs, and is now moving back lower

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The main retailer ETF (XRT) has also moved back to the recent highs (XHB has a heavier retail component than ITB)

With at least 31 of the 38 names in XHB expected to announce earnings before August 21^st, I favor owning August downside structures to position for a potential further decline (especially if we see yields to continue to rise). What I also like about XHB here is that the closer to the money August put vol has moved back down towards the recent lows (making buying puts that will also cover the bulk of earnings an attractive proposition).

Trade
Buy XHB August 107 puts for ~ $3.25 (XHB 110 ref)

Trade Details:

Buying the August 3% out of the money XHB puts following sharp rally for the housing sector off the May lows
Seeing a wide divergence between where yields and XHB trades (could see a sharp correction lower in XHB, especially if yields continue to rise)
Have already seen seven realized moves of at least 16% in XHB over the past year, so not unreasonable to think we could be setting up for another large move
Prefer XHB to ITB given outperformance as well as heavier retail/consumer component
Puts can be used to hedge exposure to the housing sector, or as a limited-risk bearish bet given very favorable setup
Please reach out to me or the 22V sales team for updated pricing and execution capabilities

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