How Options Traders Are Playing This Homebuilder Stock

TOL puts outnumber calls by a 12-to-1 ratio in the last two weeks

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House prices are plummeting across the board. However, mortgage rates are higher, which puts home buyers in a pickle What does that mean for homebuilder stock Toll Brothers Inc (NYSE:TOL)

TOL is down 40% in 2022, but has tacked on 3% this month. A breakout earlier in the month was caught by the shares' 100-day moving average, a trendline that hasn't been toppled on a closing basis since late August. On Aug. 21, Raymond James downgraded the stock and its sector peers, warning investors of a possible housing recession should home prices fall but mortgage rates remain high.

TOL Stock Chart

Moreover, Toll Brothers is expected to end fiscal 2022 with some nice top and bottom line growth. It is estimated to report an 11.8% increase in revenues and a 40.1% increase in earnings. However, expectations are low for the business for the coming year. Estimates predict a 2.1% decrease in revenues and less than a 1% increase in earnings for fiscal 2023. Toll Brothers also maintains an unideal balance sheet with $3.44 billion in total debt and just $316.47 million in cash. Nonetheless, the business remains comfortably profitable and continues to trade dirt cheap, making TOL an attractive buy for value investors.

In the options pits, the stock's 10-day put/call volume ratio of 12.00 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits higher than 97% of readings from the last year. So not only do puts outflank calls by a 12-to-1 margin, the rate of put buying has almost never been higher in the last 12 months. 

 
 

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