high returns

After more than two years of false starts, the battered U.S. housing market may have finally found a bottom.

If so, that prospect offers options investors a chance to earn higher returns on lower costs using a Home Depot (NYSE: HD) straddle. (More on that later...)

In fact, here are just a few of the latest statistics that lead me to believe housing will slowly begin to recover over the next four months...

• Sales of existing U.S. homes rose by 5% in December to a seasonally adjusted rate of 4.61 million.

• Rates for all types of mortgage loans hit record lows this month, with the benchmark 30-year fixed mortgage being offered at 3.88% last week.

• Both housing starts and applications for new residential building permits rose steadily throughout 2011, hitting respective seasonally adjusted annual rates of 657,000 and 679,000 in December, both up more than 250,000 from 2009 lows.

• And finally, last Wednesday, members of the National Association of Home Builders (NAHB) expressed their highest level of confidence in the housing market since June 2007 - the fourth consecutive month that sentiment levels have risen.

So, given the increasingly positive outlook for the housing market, the real question becomes: How can investors use this opportunity to their advantage in the first half of 2012?...

The answer is an options strategy that offers lower risk and potentially higher rewards.

How to the Play the Housing Market Bottom

Now typically, stocks that rise or fall with the tides of the housing market fall into three categories: