Toll Brothers (NYSE: TOL - option chain) stock is falling today after the National Association of Realtors announced existing home sales fell 5.3 percent in January to a seasonally-adjusted annual rate of 4.49 million, the lowest level in 12 years. Analysts had expected a slight uptick in existing home sales. 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.This morning, TOL opened at $16.87. So far today the stock has hit a low of $16.12 and a high of $16.98. As of 11:50, TOL is trading at $16.57, down 48 cents(-2.8%). The chart for TOL looks bullish and S&P gives TOL a positive 4 STARS (out of 5) buy ranking.
For a bearish hedged play on this stock, I would consider a June 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. For this particular trade, we will make an 8.7% return in three months as long as TOL is below $25 at June expiration. Toll would have to rise by more than 51% before we would start to lose money. Learn more about this type of trade here.
TOL hasn't been above $25 since October and shown resistance around $20 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.
TOL hasn't been above $25 since October and shown resistance around $20 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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