Toll Brothers, Inc. (NYSE: TOL, Stock Forum) last week reported a narrower-than-expected loss in its fiscal second quarter, and predicted a steady recovery in the housing market. However, while the news helped the shares climb higher on a week-over-week basis, broad-market woes have kept the stock range-bound between resistance at its 10-week moving average and support at its 20-week trendline, which have contained TOL during the past few weeks.
Judging by the latest data from the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE), TOL has seen a fresh crop of bearish bets arise during the past couple of weeks. During the past 10 sessions, the equity has racked up a put/call volume ratio of 1.73 on the exchanges. This ratio registers in the 86th annual percentile, suggesting that traders have bought to open TOL puts over calls at a faster clip only 14% of the time during the past 52 weeks.
Nevertheless, the bearish bias echoes the skepticism among short-term options speculators, as the security’s Schaeffer’s put/call open interest ratio (SOIR) of 1.21 stands higher than 71% of all others taken during the past year. In other words, near-term traders have been more pessimistically positioned toward TOL only 29% of the time during the past 12 months.
In fact, the mounting skepticism toward TOL parrots the sentiment on the Street, with the homebuilder earning only four "buy" or better endorsements, compared to 11 "hold" or worse ratings. Furthermore, almost 11% of the security's float remains dedicated to short interest, representing four days' worth of pent-up demand.
However, from a contrarian perspective, the pessimism levied against TOL could be a boon for the homebuilder going forward. Should the shares finally defeat resistance at their 10-week trendline, an unwinding of skepticism – whether via a reversal in sentiment in the options arena, a round of upgrades, or a short-squeeze situation – could help the stock extend its year-to-date advance.
Disclosure: Andrea Kramer has no financial interest in any of the equities or products mentioned in this column.