Jump Back Into Home Builders

Play March Calls on TOL

By Bryan Bottarelli
Tuesday, November 28, 2006 10:43 AM EST
Tue, 28 Nov 2006 15:43:00 GMT

Dear Bottarelli Research Member,

Big news is just now crossing the tape in the housing sector. According to the National Association of Realtors, existing-home sales have increased for the first time since February, rising 0.5% to a seasonally adjusted annual rate of 6.24 million in October.Based on this jump, I think its’ a good idea to play some longer-dated call options on high-end home builder Toll Brothers (TOL – NYSE).

TOL

As you can see from the chart, TOL’s 50-day and 200-day moving averages are both crossing right at the $29.00 level, which should be a very solid basis of support. With TOL currently trading for $30.15, I’d say that TOL has $1.00 of potential downside and $10 of potential upside (as TOL traded at $40 at the beginning of the year). With a 10 to 1 risk to reward scenario, let’s enter into some longer-dated TOL calls. Here’s the play:

PLAY: Buy the TOL March 30 Calls (TOL CF) at or under $3.10, good for the day. Current bid/ask spread is $2.70 to $2.90. Place a protective stop loss at $1.90.

Looking at our other play from this morning, the HES January 45 Calls (HES AI) have made a HUGE upside jump shortly after sending out the buy alert. If you missed getting in, don’t worry. We’ll have other tremendous opportunities in the oil sector in the coming weeks, especially with the cold front sweeping across the country. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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