To The Moon

Warren Buffett is sending a clear signal to the market that his Berkshire Hathaway is pouring money intoHighly sensitive to interest ratesOf the U.S. residential construction industry. The layout suggests that the legendary investor may be betting on a tailwind in the housing market based on expectations of lower interest rates going forward.

According to the latest 13F document disclosed by Berkshire Hathaway,The company took a new position in one of the largest U.S. homebuilders in the second quarter$Horton Homes (DHI) $。 Meanwhile, filings show Berkshire has increased its holdings in another homebuilder$Rainer Construction Inc. (LEN) $Of shares.

In the current market environment, Buffett's series of operations are of great significance. As one of the most watched investors in the world, his moves are often regarded as a "weather vane" of market trends. At this time, the increase in residential construction stocks undoubtedly adds an important weight to the bullish outlook of the sector and strengthens the market's expectation that the fundamentals of the housing industry may be improving.

Buffett's actions are not isolated. In fact,The stocks of some companies in the entire housing industry and its industry chain have shown signs of strength.From the technical form to the flow of funds, there are more and more signals that investors are reassessing this industry that has been suppressed by high interest rates for a long time and looking for new investment opportunities.Houghton HousesThe share price performance of also supports this bullish view. Year-to-date, the company's shares have gained 19%.

For investors who want to take advantage of the low level of U.S. bonds to buy U.S. bonds at the bottom, they can consider using the diagonal spread strategy.

What is a diagonal spread?

diagonal spread refers to the spread established using options with different strike prices and different expiration dates. Generally, the duration of the long leg in the spread is longer than that of the short leg. Diagonal spreads include diagonal bull spreads versus diagonal bear spreads.

The diagonal bull spread is basically similar to the bull subscription spread strategy, except that it has been upgraded and improved again.The difference is that the two options for the diagonal spread have different expirations, the trader buys a longer-term call option with a lower strike price and sells a shorter-term call option with a higher strike price. The number of call options bought and sold is still the same.

TLT Diagonal Spread Case

Assuming investors are bullish for the next year$20 + + Years US Treasury Bond ETF-iShares (TLT) $, you can directly buy the call option with an exercise price of 87 and an expiration date of August 21, 2026. This option becomes our long leg, which costs $450 at the latest transaction price.

After the long leg is established, we can establish the short leg according to a shorter cycle than the long leg. Here, we can choose to establish it on a weekly basis. Choose to sell the call option with an exercise price of $92 and an expiration date of September 05 and get premium of $27.

Here, if the call option sold is not exercised, it will generate a profit of $27, which is about 6% relative to the cost of $450 on the long side. However, the short leg can be executed once a week. When the remaining date of the long leg is as long as 368 days, investors can sell dozens of call options. If some sold call options can successfully obtain premium, it will greatly reduce the cost of buying the call option itself, and even get the call option for free.

Compared with buying bulls alone, the diagonal spread obtains an additional premium income, which reduces the overall net premium expenditure of the strategy, and the break-even point of the strategy is also shifted to the left, and the winning rate is also increased accordingly. AdditionallyThe selling point of the diagonal spread can be controlled by investors themselves, so different short-selling efforts can be selected in different cycles to facilitate investors to control risks. Diagonal spreadEssentially, it is a low-cost call option strategy that is worth investors studying.