Toll Brothers Inc. (NYSE: TOL) announced yesterday that it expects a 36% drop in quarterly home-building revenue this quarter, adding that net new home orders fell more steeply than in prior quarters. CEO Robert I. Toll blamed the poor numbers on the media's focus on the slumping housing market, which he says overshadowed "the positive underpinnings of low interest rates, low unemployment and a decent economy," which could eventually boost home-buyer confidence. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on TOL.

After hitting a one-year high of $35.64 in February, the stock hit a one-year low of 18.85 in August. This morning, TOL opened at $20.35. So far today the stock has hit a low of $20.11 and a high of $20.70. As of 10:55, TOL is trading at $20.44, down 45 cents (-2.1%). The chart for TOL looks neutral and deteriorating, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

For a bearish hedged play on this stock, I would consider a December bear-call credit spread above the $25 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. This particular trade will make a 4.2% return in 6 weeks as long as TOL is below $25 at December expiration. Toll would have to rise by more than 22% before we would start to lose money.

TOL hasn't been above $25 since July and has shown resistance around $23.50 recently. This trade could be risky if the Fed cuts cause the housing market to bounce back quickly, but with the company itself trying to shift blame and prepare investors for the worst, it looks like an immediate recovery is probably a long shot.

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