Trade Update $TOL Closing AprJun Put Spread For Small Loss, Bearish Thesis Remains Intact

AcoupleweeksagoIboughtanApril27/25PutSpreadintheXHB,forlargelysimilarreasonsasEnispostabove,whichinhindsightwasilltimed?

One?

lesson?

fromthislosingtradewasthatItriedtopinpointafewweekswhereIthoughttheXHBwouldmakeatopandreverse?

Tryingtopicktopsinthismarkethasproventobeafoolserrand,andourstrategyoflatehasbeentolooktogettimeanddecayworkinginourfavorthoughinthemoneybutterflysandcalendars(readCCspostfromtodayexplainingthis?

strategy?

here)。

MYVIEW?

MaybeIamjustfightingjustabittohard,andIswearIamnotbeingcontrarianforthesakeofbeingcontrarian?

BUTIjustdontseetheupsidetocommittingnewcapitaltoequities,manyofwhicharetradingatalltimehighs,andmostofwhicharetradingator?

new?

5yearhighs?

Theemploymentdatathismorningcertainlyconfirmsthenotionthatweareinaneconomicrecovery,butunlessweseesomemeaningfulearningsgrowththisyear,equitiescouldbepricedforperfectioninwhatwillbeabumpyroadtoeconomichealththatdoesntrelyonthemoneyprintingthatexistsbycentralbankstheworldover。

MostpeoplethatIknowandspeakwitharenotseeingtheirinvestmentaccountsbacktopeaks,theirhomesarestillunderwater,theyareworkingharderforlesswithhighertaxesandausterityallaround?

Igetthe?

argument?

fortherecenthousingrecovery,rateshavebeenathistoricallowsandinventoriesdepleting,butthiscouldhavebeentheresultofan?

extremely?

depressedmarketthatwaswoundlikeacoiledspring?

Housingcould?

continue?

toimproveataslowerpaceoffofthebottom,butthelikelihoodofcompanieslikeTOLgettingbacktopeakearningsanytimesoonisnotgreat。

Againtoreiterate,TOLtradesat~38xthisyearsexpectedearningsvsthe~8x2006earningsittradedlasttimethestockwas~$35inmid2006?

Somethinghastogivehere,andfiscalQ2earningscouldbetheverycatalystthatcouldputacaponhousingstocksforthebalanceoftheyearifthe?

company?

doesnotsee?

materialfundamental?

improvementstoearningsandmargins。

IWANTTOOWNPUTSFORJUNEEXPIRATION,BUTNOTSITWITHTHEMINALOWVOLENVIRONMENT?

GivenTOLsrecent?

under-performance?

tothesectorandthebroadmarket,Iwanttolookforwaystotakeadvantageofwhatcouldbearangeboundmarketuntilquarterend,andsetuptoownputsabitfurtherout?

Nearthemoneycalendarspreadsshouldperformwellinthislowvolenvironment。

TRADE:TOL($35。

20)BoughtApril/June35PutSpreadfor1。

05

-Sold1TOLApr35Putat1。

35

-Bought1TOLJune35Putfor2。

40

Break-EvenonAprExpiration:

-Mymaxriskisthe1。

05inpremiumIpaidforthespread,butthespreadbasicallyisflatdeltassolargepricemovementswillnotaffectthevaluetoomuchintheneartermunlessthereisadramatic?

movehigherorlower。

Myidealsituationwouldbeforthestocktobeatorslightlyabove35?

AtthatpointIwilllooktospreadtheJune35PutsinfrontofearningsthatshouldfallinlateMay。

TradeRationale?

AswasthecaseinCATtheotherday(here)?

Iwanttogetshort,butIamnotyetreadytogoallinandgetoutrightshortsinglenamesasIthinkasustainedcorrectionwilltakesometimeto?

evolve?


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