TOL - For Whom The Bell Tolls

We picked up some TOL Dec32-1/2 puts late in the session ahead of Tuesday morning pre open earnings. We're up over 200% this year, so I took the liberty of putting my conviction to work that things are just plain bad in the real estate market. We'll see if I'm right.

$1.06/shr is the consensus estimate. Given some preliminary guidance the company issued in November and its habit of slightly beating, we won't be surprised if that happens again. What this play is about is a play on future guidance. I just can't see how guidance on margins and overall sales can be positive going into 2007, especially given recent macro economic data.

TOL has enjoyed a nice run in recent months, retracing about half of a this year's bearish range. That's typical of a bearish pattern and is often mistaken for a bullish breakout; nothing could be further from the truth. This pattern is also known as the dreaded b e a r t r a p

The real estate market only really started to come apart in earnest this past summer. If anyone truly believes we've already hit bottom in real estate, they must have taken a nail between the ears from a pneumatic nail gun when they weren't looking.

Across the TOL December options chain, the most active was the Dec30 puts where more than 22 hundred traded mostly on the offer. So there are those who are even more bearish than I am by buying the the 30 puts which are about $2 out of the money. The folks who bought them today are betting on a $2 slide in the stock before the end of next week.