Subject: Options 101: How to Win Big on Toll Brothers (NYSE: TOL) with a Calendar Spread
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Options 101: How to Win Big on Toll Brothers (NYSE: TOL) with a Calendar Spread
By Larry D. Spears, Contributing Writer, Money Morning - February 3, 2012
Last week, I explained how to profit from housing-sector stocks like Home Depot Inc. (NYSE: HD) using a modified option straddle.
Today, we'll look at an alternative options strategy - known as a long-term calendar spread.
This strategy is better suited to stable or trending stocks.
It's particularly appropriate for companies, whose share prices aren't likely to make a major move until the housing recovery picks up more steam.
In this case, I'm talking about a company like the Toll Brothers Inc. (NYSE: TOL).
The key for using a calendar spread strategy on Toll Brothers is the prospect of a slow-appreciation scenario. That's likely, given the news in the housing market isn't always so rosy.
For example, MSNBC reported on Saturday that, in spite of the lowest rates ever and home prices that are down by a third since 2006, mortgages now are much harder to get.
That type of news is the primary reason you probably don't want to buy a stock like Toll Brothers right -especially since it's already up 74% off the October lows.
However, that doesn't mean you can't profit from Toll Brothers using options to create a long-term calendar spread.
How to Structure a Toll Brothers Calendar Spread
Here's how it might be structured, based on prices available early this week:
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