Post-Earnings Dip Doesn't Deter Toll Brothers Inc (TOL) Bulls

Toll Brothers Inc missed Wall Street's fiscal fourth-quarter earnings estimate


Published on Dec 10, 2014 at 1:28 PM
Updated on Apr 20, 2015 at 5:09 PM

Toll Brothers Inc (NYSE:TOL) didn't fare well in the session after its September trip to the earnings confessional -- during which the shares lost 4.7% -- and things are no different today. Currently, the homebuilder's stock is down 4.6% at $33.19, following a fiscal fourth-quarter earnings miss. Nevertheless, options traders are rolling the dice on a rebound over the next several weeks.

Diving right in, calls are crossing the tape at a pace 2.5 times the expected intraday average, and outweigh puts by a healthy margin. Stealing the show is TOL's January 2015 36-strike call, where 2,313 contracts are on the tape. Nine-tenths have been exchanged at the ask price, volume tops open interest, and data from the International Securities Exchange (ISE) confirms some buy-to-open activity. In other words, these bullish bettors think the shares will topple $36 by January options expiration, roughly five weeks from now.

Looking at the charts, Toll Brothers Inc (NYSE:TOL) hasn't explored the north side of $36 since late July, and is sitting on a year-to-date deficit of more than 10%. As such, delta on the 36-strike call is a slim 0.15, signifying a 15% chance the contract will be in the money at expiration.

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