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Housing Bulls Target Toll Brothers

By David Russell of OptionMonster

NEW YORK -- Homebuilders have been coming to life recently, and now the bulls are targeting Toll Brothers (TOL).

OptionMonster's tracking systems detected the purchase of about 17,000 September 40 calls Monday, most of which priced for 55 cents and 60 cents. Volume was more than 25 times the previous open interest in the strike, which shows that new money was put to work on the long side.

Long calls lock in the price where investors can buy a stock, letting them cheaply position a rally. They can enjoy significant leverage if shares move in the right direction, but the contracts can expire worthless if shares remain below.

Toll fell 2.05% to $36.34 on Monday but is up almost 7% in the last two months. That outpaces the gain of the broader S&P 500 during the same period.

Housing data has been strong of late, with pending home sales, new-home sales, and existing home sales all beating estimates in the last month. Other homebuilders, including KB Home (KBH) and Lennar (LEN), recently announced better-than-expected earnings.

Overall option volume in TOL was 20 times greater than average in the session, with calls accounting for a bullish 95% of the total.

Russell has no positions in TOL.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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