The Fed is expected to raise rates. There's a bearish trade to be made on this homebuilder
Interest rates across the entirecurve just broke out to levels we have not seen since 2007. The 10-year Treasury yield pushed above 5% this week, a level last touched before the Great Financial crisis. That kind of move doesn’t stay contained to the bond market. It flows straight through to mortgage rates, and mortgage rates are the single biggest lever putting pressure on home builders such as D.R. Horton . The stock broke a key support level last month, bounced, and has now rallied right back into that same level with weak relative strength, making this an optimal entry setup for a defined-risk bearish trade. Timing & outlook D.R. Horton broke below $140 last month and has since rallied back to retest that same level as resistance. The next real support below sits at $131. The stock is down 9% over the past month and 10% over the past three months, both weak readings that give it a relative strength score of 4 out of 10 versus the S & P 500. Homebuilders continue to trail the S & P 500 on both a weekly and daily basis in our sector rotation model, with no signs yet of turning higher. Fundamentals D.R. Horton doesn’t look expensive on paper at justabove11x times forward earnings, barely above what the industry trades at, the stock reads as a reasonable value. The problem is that the earnings driving that multiple are already sliding, and the company’s own guidance says so. D.R. Horton cut its own full-year revenue guidance by roughly $1 billion in July, citing incentive-driven margin pressure and demand that hasn’t kept up with expectations. Its valuationcan start to look expensive fast once the earnings start revising lower and macro conditions deteriorate. Bearish thesis Guidance cut confirms slowing demand. The company lowered its fiscal 2026 revenue outlook to $32.5 billion to $33.0 billion as orders grew just 0.1% year over year versus the roughly 6% growth analysts had modeled. Mortgage buydown gap keeps widening. D.R. Horton was buying down rates to 4.9% for buyers in its backlog against a roughly 6.5% market rate as of its July earnings call. The 30-year mortgage rate has since climbed to 7%, a fresh one-year high, making every new buydown more expensive to originate. Wall Street is trimming targets while the sector lags the market. Keefe, Bruyette & Woods cut its D.R. Horton price target to $167 on July 22, and homebuilders continue to trail the S & P 500 on both a weekly and daily basis in our sector rotation model. Options trade Given the failed retest of $140 as resistance, the industry-wide underperformance, and a mortgage rate backdrop that keeps getting worse heading into today’s Fed decision, we’re looking at a bear put spread to bet on further downside toward the $120 level while keeping the risk limited. The trade: Buying the Nov. 20, 2026 140/120 Put Vertical @ $6.62 Debit The individual legs: Buy to Open the Nov. 20, 2026 $140 Put Sell to Open the Nov. 20, 2026 $120 Put Max reward: $1,338 if D.R. Horton is below $120 at expiration. Max risk: $662 if D.R. Horton is above $140 at expiration. Breakeven: $133.38, the level below which the trade starts showing a profit at expiration. View this Trade on OptionsPlay for Updated Pricing Summary D.R. Horton spent the summer promising growth it’s no longer delivering. The stock broke support, bounced back to retest it, and now sits right where sellers previously took control. Mortgage rates just hit a one-year high, the Fed decides on a hike today, and D.R. Horton’s own guidance cut in July already flagged the demand softness now showing up in the chart. The November put spread offers a defined way to play further downside toward $120, without needing to guess exactly how the Fed decision plays out today. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
