This column was originally published on RealMoney on Feb. 8 at 8:53 a.m. EST. It's being republished as a bonus for readers. For more information about subscribing to RealMoney, please click here.

The bidding war for

Equity Office Properties


finally came to a conclusion yesterday, but will this also bring to a close the incredible price run for commercial real estate properties and REITs? Some believe this record-setting $39 billion buyout will mark the top for this sector, which, as measured by the

iShares Dow Jones Real Estate Trust

(IYR) - Get Report

, has gained some 90% over the past two years.

REITs have obviously performed well, but one of the biggest price drivers has been takeover activity, which has pushed valuations to frothy levels. With the Equity Office deal complete and the bidding for



nearing a conclusion, one has to wonder if, now that returns on investments are less attractive, the takeover activity and the accompanying rise in prices will cease.

The End Is Near, Not Here

However, many analysts argue that while the boom may indeed end eventually, the time is not now. In fact, some make the case that the cash buyout for Equity Office, which takes it private, will spark the shares of many other publicly traded REITs.

They point out that nearly half of Equity Office's shares were owned by funds with a dedicated allocation to the sector, meaning that about $18 billion needs to find a new home quickly. In addition, Equity Office was the second-largest component of the IYR, representing 4.8% of the exchange-traded fund.

Some evidence of this reallocation could be seen yesterday as shares of


(VNO) - Get Report

, the loser in the bidding war, jumped almost 7%.

There certainly seems to be plenty of money still looking to be invested in commercial real estate companies, but I believe the gains in price will slow. In fact, I see a good chance for a pullback at some point in the next few months.

Options Play Can Deliver Returns

Without trying to time the market too finely, here's one way to play the scenario of further near-term price gains followed by a correction. You could use options to employ a form of a calendar spread in the IYR.

Specifically, I would look to buy the March $96 calls for about $1.25 per contract and simultaneously sell the same number of contracts for the September $100 calls for around $3 per contract. This creates a diagonal calendar spread for a $1.75 net credit.

The position would benefit from a near-term rise in the share price of IYR. The plan would be take profits on a near-term rally by selling the March calls before their expiration and remain short the September calls on the belief that IYR will not go much above the $102 breakeven point, or about a 10% rise from current levels.

If you want to avoid having a naked short position, you could buy a higher-strike call in the September options to create a vertical spread. This would be a limited-risk bearish position.

Since both the calendar spread and the vertical spread are net credit positions, they would both benefit from time decay -- that is, you could profit even if shares of IYR remain around current levels or even move moderately higher but remain below $100 before the September expiration.

Steven Smith writes regularly for In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He appreciates your feedback;

click here

to send him an email.

To read more of Steve Smith's options ideas take a free trial to Options Alerts