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Here’s how options traders think Toll Brothers’ earnings report will affect homebuilder stocks

The XHB homebuilders ETF has surged more than 100% since the market lows as a slew of data has pushed sentiment around the space into nosebleed territory. 

The homebuilder sentiment index hit an all-time high last week, while July’s housing numbers surprised to the upside in a record-breaking way of their own. That’s been great news for the builders, and according to the options market, it might be great news for Toll Brothers as it gears up to report earnings Tuesday afternoon.

“[The stock] traded more than four times its average daily call volume. Right now, the options market is implying a move of about 7.8% [in either direction] by the end of the week. That’s more than the 6.1% or so that the stock has averaged over the last eight quarters,” Optimize Advisors CIO Michael Khouw said Monday on CNBC’s “Fast Money.”

The stock also traded more than five times its average daily put volume as traders looked to position themselves ahead of what could be a make-or-break report for the space, but the most active contract of the day reflected plenty of bullish sentiment. 

“The most active options were the September 46-calls,” said Khouw. “About 3,000 of those traded for about $2.25. Buyers of those calls are obviously betting that the earnings news, and everything that follows going into September expiration, will be positive and the stock will be at least 5% higher in the next four weeks.”

Toll Brothers was 1.5% lower in Tuesday’s session.


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