Don here...
Blake just uncovered a mortgage company that's literally losing money on every deal.
Negative cash flow. Negative profit margins. Negative return on equity.
And that was BEFORE mortgage rates failed to drop after the Fed cut.
Here's what Blake found when he pulled up Rocket Companies:
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Net income: Negative $102 per share
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Quick ratio: Can't survive four months without selling inventory
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Free cash flow: Deep in the red
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Stock just broke its trend line with a runaway gap
The setup gets even better.
Mortgage rates haven't fallen despite the Fed's September cut. The 10-year Treasury bounced higher after the cut and still hasn't returned to pre-cut lows. That means mortgages haven't gotten cheaper. Home builders aren't selling. And companies like Rocket that ONLY do mortgages are getting crushed.
Blake's targeting a move from current levels down to $14. That's about a 20% drop for a company that's already bleeding cash and can't afford a slowdown in lending.
The trade structure is a diagonal put spread. Buy deep in the money to minimize time decay exposure. Sell shorter-term premium at deltas between 30-40 to collect income. Roll down and out every two weeks.
Blake calculates collecting roughly $1.83 in premium against just 80 cents of time decay by rolling three times into November. That puts the entire structure into positive theta while maintaining downside exposure.
The math works out to paying about $3 for an $8 spread by the time Rocket hits that $14 target in six weeks.
Blake's also covering similar setups in KRE (regional banks), Toll Brothers, and other mortgage-exposed names that are facing the same headwinds.
π Click here to watch Blake walk through the exact strikes, rolls, and timing on this setup
To your success,
Don Kaufman
Chief Market Strategist, TheoTRADE
