Jim Strugger's Option Strategy For Toll Brothers

Shares of Toll Brothers Inc TOL made a 7 month high on Monday and managed to hold up the gains throughout the day. The company is going to report its quarterly earnings two weeks from now. MKM Holdings Derivatives Strategist Jim Strugger was on Bloomberg Monday to share his option trade on Toll Brothers.

The Trade

“Yeah this is really just a trade on the spring selling season…they’ll report in a couple of weeks,” Strugger said. “The group has performed very well after some weak earnings earlier in January, we are cautiously optimistic heading into the spring selling season. On the macro scale […] trades on low, the employment report last week very constructive on ongoing employment gains.”

He continued, “What we want to do is simply go out to June, implied volatility […] relatively low. The stock has been an underperformer over the last year, we just want to buy [$]40 Calls outright. Simple straight-forward trade with defined risk for upside in Toll Brothers.”

Why Toll As Opposed To Other Builders?

“Well, there are two we really like to play this potential trade,” Strugger replied. “One is Toll and they are because we think less risk of margin pressure going out over the year. The other is KB Home KBH, this is a stock that trades at 0.8 times forward book, about half of the group. So, a real value name that if we do see demand for housing in the spring selling season, we think has plenty of upside relative to the rest of the group.”