NEW DIRECTIONAL PUT PLAYS

Toll Brothers - TOL - close 22.79 change -0.21 stop 15.90

Company Description:
Toll Brothers, Inc. designs, builds, markets and arranges financing for single-family detached and attached homes in luxury residential communities. The Company is also involved, directly and through joint ventures, in projects where it is building, or converting rental apartment buildings into high, mid, and low-rise luxury homes. The Company caters to move-up, empty-nester, active-adult, age-qualified and second-home buyers in 21 states of the United States. As of October 31, 2009 the Company delivered 32,189 homes from 604 communities. The Company operates its own land development, architectural, engineering, mortgage, title, landscaping, lumber distribution, house component assembly, and manufacturing operations. It also develops, owns and operates golf courses and country clubs. (source: company press release or website)

Why We Like It:
TOL surged higher last week along with the other homebuilders, setting new 52-week highs. The surge was credited to a sharp increase in new home sales which many feel was a result of the homebuyer tax credit expiring this week. This probably created pent-up demand and the builders could suffer from it in the future. In addition, TOL is a builder of luxury homes and the tax credit phases out for married persons making more than $225K per year. So TOL may not have benefitted like the other builders. I believe the rally in TOL may have been "dragged along for the ride" and I am expecting a pullback. From a technical standpoint TOL has reached resistance from August 2009 which I think will hold and give us the pullback we are looking for to make a quick profit. I would like to buy puts on TOL at current levels. We'll use a stop of $24.25 which is above the recent highs. Our target is $21.50 and our time frame is a couple of days to about two weeks, depending on price action.

Suggested Position: JUNE $23.00 PUT, current ask $1.40

Annotated Chart:

Entry on April xx at $ xx.xx
Earnings Date Over 2 months
Average Daily Volume = 3.2 million
Listed on April 26, 2010