In the Money

Get a fresh take on market opportunities. Hear from options strategist and CNBC contributor Dan Nathan for insights, commentary, and ideas to help you trade smarter.

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September 18, 2020: What’s happening with TOL?

Sometimes the stock market can be a Clash of competing narratives leaving investors to ask themselves, "Should I stay or should I go?" Over the last few weeks, after August's epic 10%-plus rally in the Nasdaq, investors have been faced with a debate over whether the year-to-date gains in the largest tech stocks have priced in all of the potential short term benefits of the trillions in fiscal and monetary stimulus thrown at the pandemic.  Or as the Fed indicated today, will they stay the course and expect the US Treasury and Congress to grab the baton, putting further upward pressure on risk assets. Keep an eye on the Nasdaq 100's proximity to its uptrend from the March lows—a failure to meaningfully establish a new range above it in the near term could signal punkish returns for the balance of the year.

Let’s look back on a trade idea from In the Money on September 9. You can find more information on this trade idea by viewing the video above or listening on Apple Podcast.


September 9: Bullish trade idea on Toll Brothers (TOL)

Trade idea: With the stock currently at $42, buy TOL September/December 45 call calendar for $3.20

·         Sell to open 1 September 45 call at 60 cents

·         Buy to open 1 December 45 call for $3.80

Update: With the stock trading at $44.97, this trade idea is worth about $4.15 for a 95-cent profit. It may be time to consider our options on this trade idea as the short September 45 call that expires on Friday, September 18, will need to be managed. The stock went nearly where I had hoped. One option to consider would be to take the quick profit and close out the trade altogether. Another consideration would be to keep a close eye on the stock into Friday's close and look to buy to cover the short September 45 call for pennies leaving long the December 45 call that has appreciated nicely with the stock's $3 move in a week. One could cover the short September 45 call and sell to open the December 50 call making a December 45–50 call spread.

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