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TOL $84.41 Toll Brothers ** No Stop **

Toll Brothers has been vertical since early December and the last week has been one of the rare consolidation periods. We saw TOL pullback to just over $81 and hold there for an entire week despite interest rate worries and repeated stories on the bursting of the housing bubble. I would have liked to see a sharper pullback but homebuilders have been like energy stocks. Any pullback is a gift and they don't last long.

This is going to be a high-risk entry because TOL has earnings on the 23rd. I checked back several quarters and they have moved higher on earnings instead of lower. They continually raise the earnings bar and exceed expectations. Eventually this trend will fail. We need to make sure to take out the insurance put on this play. I considered waiting for the earnings to pass but that could cost us another missed entry if they gap up another $10 and announce a split. If you feel this is too risky then pass on this trade.

Toll Brothers is unique in that it does not just build homes. This gives them a broader revenue base than many other builders and should insulate them from any softness ahead.

Toll Brothers overview: Source - company press release.

Toll Brothers, Inc. is the nation's leading builder of luxury homes. The Company began business in 1967 and became a public company in 1986. The Company serves move-up, empty-nester, active-adult and second-home home buyers and operates in 21 states.

Toll Brothers builds luxury single-family detached and attached home communities, master planned luxury residential resort-style golf communities and urban low-, mid- and high-rise communities, principally on land it develops and improves. The Company operates its own architectural, engineering, mortgage, title, land development and land sale, golf course development and management, home security, landscape, cable T.V. and broadband Internet delivery subsidiaries. The Company also operates its own lumber distribution, and house component assembly and manufacturing operations.

Buy 2006 $85.00 LEAP Call YKW-AQ currently $11.90

Insurance put
Buy March $80.00 Put TOL-OP currently $1.95

If we have a negative earnings surprise we should be protected and we can make a hold or exit decision next week.

Entry $84.10 (02/20)

TOL Chart

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