Straddling Positions Into the New Year

The ongoing discussion about a potential housing bubble vs. the case for awarding these companies a higher multiple makes a homebuilder stock like Lennar(LEN) an attractive candidate.

Lennar's current implied volatility is around 31%, just above its 52-week low of 27% hit last May. With the shares currently trading around $100, its February 100 straddle can be purchased for $13.20, giving break-even points of $113.20 and $86.80. Because Lennar's stock has climbed some 35% in the last two months, and swooned 18% in a five-week span during the summer's interest rate spike, the probability of a 13% move over the next 10 weeks seems reasonably high.

Gold stocks such as Newmont Mining(NEM) also meet the above requirements. It is hotly debated whether these stocks' runups are sustainable -- or vulnerable.

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