Cramer bearish on Toll Brothers and other homebuilders

Toll Brothers Inc. (NYSE: TOL) opened at $24.73. So far today the stock has hit a low of $24.55 and a high of $24.93. As of 11:05, TOL is trading at $24.76, down $0.22 (-0.9%).

After hitting a one-year high of $35.64 in February, the stock has seen two sharp dives over the past six months. Jim Cramer said that there is "no good reason to own homebuilders" right now. The media and investors have focused heavily on the potential impact of the subprime bust on the lenders, when the real losers are the homebuilders, who won't sell anything unless people can get loans. Whereas the financial stocks like Merrill Lynch (NYSE: MER), Goldman Sachs (NYSE: GS) and Bear Stearns (NYSE: BSC) can turn to other aspects of their businesses to make money, homebuilders will continue to suffer until home sales get a boost. Recent technical indicators for TOL have been neutral and deteriorating, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $30 range. TOL has not been above $30 for more than a few days at a time since February and has shown resistance around $25.60 recently. This trade could be risky if the housing market turns around in the coming months, but with indications that interest rates are likely to remain stagnant, I feel comfortable with this position, since TOL can rise by 21% and we would still make the full return.

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

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in TOL, GS, BSC or MER.