It was morning in America on Friday for the home-builders, whose shares all gapped higher after a creative analyst at Smith Barney came up with a hitherto unsuspected reason why we should still be bullish on the housing sector. According to the analyst, Stephen Kim, home builders could handle a downturn in the housing market because sales of existing homes would bear the brunt of the decline. We’re not buying it, not one bit, but even so, we got a piece of the action when six home builders on Smith Barney’s short list took flight Friday. We just happened to be long some June 60 Beazer Homes calls that I’d already declared brain dead, kaput. They cost us just 0.15, and you could have bought all you wanted for 0.05 in the days before they expired. But before going to their reward on Friday, the calls traded as high as 0.95, more than six time what we paid for them.

Without a doubt, we have housing-stock bears to thank for our good fortune, since the rally was a picture-perfect short squeeze the whole way -- far more powerful than occurs when it is mere wishy-washy bulls who are doing the buying. Not that shorts would be much consoled to hear this, but they hardly acted  like the proverbial greater fools. For each and every reason some retail analyst can come up with to buy the likes of KB Homes, Hovnanian, Meritage, Ryland, Pulte and Beazer, there are at least three even better reasons to fade the rallies in these stocks, especially extreme rallies such as Friday’s. And so we did, buying some August 35 puts in D.R. Horton a nickel off their intraday lows. The puts had gained 25% by day’s end -- perhaps because Horton, alas, did not make Smith Barney’s list of favorites.