As it Pushes to New Highs, REIT ETF Sees Increased Options Activity

The iShares Dow Jones US Real Estate Index Fund (NYSEArca: IYR), like other real estate investment trust (REIT) exchange traded funds, is pushing higher this year as investors embrace defensive sectors.

REITs are comprised of companies that own office towers, hotels, shopping malls and other commercial properties, offering investors exposure to the domestic economy and away from the uncertainty associated with the global supply chain, the Wall Street Journal reports.

IYR’s recently bullish ways (the fund is up 3% this month) is prompting some unusual options activity in the fund, which is one of the largest real estate ETFs.

“Aiding the exchange-traded fund’s (ETF) rally has been the 80-day moving average, which has contained multiple pullbacks since April, and growing expectations for a Fed rate cut [that]could have investors hoping that lower mortgage rates will boost the housing market,” reports Schaeffer’s Investment Research.

Hedging Their Bets

While the path of least resistance with IYR and rival REIT ETFs has been higher, it appears some traders are hedging long positions in the fund.

“In the options pits, traders have been busy today. Currently, more than 8,000 calls and 15,000 puts have changed hands — about 1.5 times the expected intraday pace. There’s notable activity at the weekly 6/28 84- and 87-strike puts, where a bear put spread looks to have been established,” according to Schaeffer’s.

Real estate investors also enjoy attractive dividend yield-generation, which provides an alternative to bonds as a source of income. The sector offers yields that exceed sovereign and corporate investment bonds. Unlike bond coupons, real estate dividends can grow over time, which is invaluable in periods of high growth and inflationary environments. Additionally, due to real estate’s long-term leases, they provide a more reliable source of dividends than other equities.

“The trader looks to have bought to open 4,000 87-strike puts for $0.47 each, and simultaneously sold to open an equal amount of 84-strike put for $0.12 each. This spread was established for a net debit of $0.35 per pair of options ($0.47 – $0.12), or $140,000 total (net debit x 100 shares per contract x 4,000 spreads),” notes Schaeffer’s.

For more information on the real estate investment trusts segment, visit our REITs category.