Toll Brothers (NYSE: TOL - option chain) shares are soaring higher today after weekly mortgage data came out this morning that showed applications rose last week. This after yesterday's mixed numbers for new home sales caused at least one celebrity stock analyst to call a bottom in housing. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on TOL.TOL opened this morning at $22.42. So far today the stock has hit a low of $22.33 and a high of $23.43. As of 12:15, TOL is trading at $23.43, up $1.10 (4.5%). The chart for TOL looks bullish and S&P gives TOL a positive 4 STARS (out of 5) buy ranking.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $17.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in just seven weeks as long as TOL is above $17.50 at October expiration. Toll would have to fall by more than 25% before we would start to lose money. Learn more about this type of trade here.
TOL hasn't been below $17.50 by more than a few cents since January and has shown support around $21.25 recently.
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.
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