Bears double money in $TOL

Option traders opened downside positions in Toll Brothers more than three months ago, and today their patience paid off.

On Aug. 21, Investitute’s proprietary programs found that 5,000 December $40 puts were bought for $2.84 to $3.30 with shares at $38.62. This was clearly fresh buying, as open interest in the strike was only 221 contracts before the trades occurred.

Those puts ended today’s session marked at $6.95, more than twice their purchase prices. The stock fell 14.58% in the same time period, a large move but nowhere near that of its options on a relative basis.

Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.

TOL was down 1.61% to $32.99 today. The upscale homebuilder beat earnings and revenue estimates this morning but reported that new orders had slowed.