Cramer: DR Horton may not survive

DR Horton Inc. (NYSE: DHI) opened at $17.03. So far today the stock has hit a low of $16.91 and a high of $17.56. As of 11:00, DHI is trading at $17.24, up $0.08 (0.5%).

DHI has been trading in a sideways pattern for the past three months. The stock is falling today after Jim Cramer put out a fairly negative quote on the company's future. Cramer stated that based on what he saw in the company's balance sheet that he was seriously questioning whether or not the company would be able to "make it". Technical indicators for DHI are bearish and steady, while S&P gives the stock a negative 2 STARS (out of 5) sell rating.

For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $20 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk and leverage returns. For this particular trade, we will make an 8.7% return in just 2 months as long as DHI is below $20 at September expiration. DHI would have to rise by 15% before we would start to lose money.

DHI has been above $20 by a few cents in the past month but has fallen hard to $17 and has shown resistance near $19.80 recently. This trade could be risky if the housing market sees a resurgence, but even if that happens, it would be tough for the stock to get over the $20 level with the amount of skepticism there is about housing right now.

Brent Archer is an options analyst and writer at Investors Observer.