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Bull builds position in Toll Brothers

Mike Yamamoto (mike.yamamoto@optionmonster.com)

Toll Brothers has been pulling back from seven-year highs in recent months, but one trader is betting on a rebound in the next six weeks.

optionMONSTER's Heat Seeker tracking system detected the purchase of 5,000 May 34 calls in one print for $0.53 on Friday. The volume was nearly 6 times higher than the strike's open interest before the trade appeared, clearly showing that it is a new position.

These long calls , which lock in the price where the stock can be purchased, are looking for TOL to gain more than 7 percent by mid-May. These options could be sold earlier at a profit if their premiums rise with a rally before then, but they will expire worthless if shares remain below the $34 strike price. (See our Education section)

TOL rose 1.13 percent to $32.16 on Friday after falling for eight straight sessions , dropping below its 50- and 200-day moving averages along the way. The homebuilder had rallied to $38.36 in January, its highest level since January 2006, but has faltered since then along with the rest of the sector.

our researchLAB analysis tool has been tracking the sector's weakening momentum recently. Although homebuilders are up more than 72 percent in the last 12 months, the group was down 7.65 percent last week, as shown on the screen shot below. In addition, a large bearish position was opened in the SPDR Homebuilders Fund last Wednesday.

Total option volume in TOL was just shy of 8,900 contracts on Friday, triple its daily average for the last month. Calls outpaced puts by 7 to 1, a reflection of the session's bullish sentiment.

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