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TheStreet.com TV Recap: How to Play the Builders Now

TheStreet.com Staff

Going long KB Home (KBH Quote) and short the housing sector index (HGX) is a good trade to put on at the beginning of next week, Jim Cramer said on TheStreet.com TV's Wall Street Confidential Web video on Friday.

"I don't want to [short] individual housing stocks anymore," he said. "They're all too heavily shorted."

Instead, he said, he expects the HGX index (the Philadelphia Stock Exchange Housing Sector Index (HGX Quote)) to bounce at the beginning of the next quarter because, although not advisable, people like to buy the losers of the quarter.

This index, which includes Standard Pacific (SPF Quote) and Beazer Homes(BZH Quote), has not been able to take out its low during this period.

Therefore, "there are a lot of people saying that now the HGX has bottomed," Cramer said. "That is what makes for the good trade."

"When a lot of people feel like an index has bottomed because it didn't take out its low, there tends to be a nice whoosh up," he continued.

When that whoosh up happens, Cramer said he wants people to buy puts on the HGX, because there are two stocks in the index that he believes "have a very good chance of going to zero."

At the same time, he said, he doesn't want to short those individual stocks because if they don't go to zero and get any good news, they're going to go up.

"The index is going to get inflated again because technically it held," Cramer explained. "It's the technicals that are ruling. I want very much to bang that index after a rally."

Moving on to KBH, Cramer said that after looking at the company's balance sheet on Thursday, KBH is good and will make it. "They're good to 2014," he said. "That is absolutely enough time to turn around the operation."

Although it has way too much land and a bad debt-to-equity level, the homebuilder's balance sheet has "dramatically" improved, and it has more than $1 billion in cash, Cramer said.

"A way to play the HGX is to go buy calls or common KBH because it's now out of the woods, and short the index," he said. "That's a trade I would endorse both sides of."

"Real estate can turn," Cramer said. "I'm not saying real estate can't turn. It's just that yesterday we had the Freddie Mac (FRE Quote) CEO, Fannie Mae (FNM Quote) CEO and the KBH CEO saying that 2008 is now a write-off. That's far more bearish than I've been."