Housing Market Turmoil Fuels Big Moves in This Stock. Here’s an Option Strategy to Manage the Swings

Zillow Group Inc. operates one of the most recognized online real estate marketplaces, connecting millions of users looking to buy, sell, rent, or finance homes. Through its website and mobile app, the platform has become a go-to source for housing data, price estimates, and real estate services. But Zillow’s journey hasn’t been without its missteps particularly when it ventured into the home-flipping business.

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In 2018, Zillow took a bold step by launching a new division focused on buying and reselling homes, effectively turning itself into a real estate investor. The idea was to leverage its deep data insights to profit from housing trends. However, the move proved riskier than expected.

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By 2021, the company had accumulated roughly 7,000 homes under its portfolio. Yet, the business turned into a costly experiment, racking up nearly $590 million in losses in the second half of that year. CEO Rich Barton eventually pulled the plug on the operation, acknowledging that Zillow’s algorithms and pricing models were not reliable enough to predict housing trends profitably.

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Since exiting the home-buying venture, Zillow has been working to stabilize its core business and return to consistent profitability. While challenges persist, analysts on Wall Street have expressed cautious optimism about the company’s recent performance.

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For the quarter ended September 30, Zillow projected adjusted EBITDA between $150 million and $160 million, while consensus estimates suggest the firm could report around $105.6 million in adjusted net income potentially marking its most profitable quarter ever.

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Looking ahead, analysts see further upside in fiscal 2026, projecting roughly 30% year-over-year growth in net income and even greater gains in adjusted earnings per share. These expectations are underpinned by the company’s ongoing $1 billion share repurchase program, representing about 5.8% of its total market capitalization.

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If Zillow can deliver on those targets, the combination of earnings growth and stock buybacks could provide meaningful support for the share price. However, the broader housing market continues to pose serious challenges.

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Tight inventory, stubbornly high mortgage rates, and declining affordability are keeping many potential homebuyers on the sidelines factors that could limit Zillow’s growth momentum despite internal improvements.

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Investors will be watching closely when the company reports third-quarter results on October 30. The stock’s historical volatility around earnings adds to the anticipation. Last year, shares jumped nearly 25% after an upbeat report, only to give back gains in the months that followed. The stock has since traded in a wide range, climbing from around $60 to the high $80s before settling near $70 per share.

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For traders looking to play the upcoming report, one possible strategy involves selling a December 60/80 strangle for approximately $4 about 5.7% of the current share price. This trade establishes breakeven points roughly 20% above and below the current level, implying a willingness to buy shares around $56 (near last November’s lows) or sell them around $84, just shy of the stock’s three-year peak in September.

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While such an options strategy may appeal to those expecting limited volatility, it reflects the uncertain outlook for Zillow as it navigates both company-specific and macroeconomic headwinds. Still, with management focused on profitability, disciplined capital allocation, and returning cash to shareholders, there’s a sense that the company is regaining its footing after years of turbulence.

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Whether Zillow’s next chapter delivers sustained growth or more growing pains will depend largely on how well it adapts to an evolving housing market one defined by affordability pressures, changing buyer behavior, and persistent supply constraints. For now, investors appear cautiously optimistic that the company’s best days could still lie ahead, provided it can balance innovation with execution in a challenging real estate landscape.

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