Toll Brothers (TOL) - Depressed Vol into Earnings; Feb and Mar a Little Too Similar?

TOL is trading $23.40, down 1.9% with IV30™ up 0.4%. The LIVEVOL® Pro Summary is below.



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Toll Brothers, Inc. designs, builds, markets and arranges financing for single-family detached and attached homes in luxury residential communities. The Company is also involved, directly and through joint ventures, in projects where it is building, or converting rental apartment buildings into, high-, mid- and low-rise luxury homes.

This is a vol note -- specifically depressed vol into earnings and an interesting vol comp. Let's start with the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



On the stock side, we can see how the underlying has been increasing rather abruptly since the lows in mid Oct. In fact, the stock is up ~67% since that time as of this writing.

On the vol side, we can see how the implied has been dipping as the stock has been rising. In that same time period when the stock has risen 67%, the IV30™ has dropped from 55.68% to 34.64% or a 38% drop. The 52 wk range in IV30™ is [24.25%, 57.54%], putting the current level in the 31st percentile. As far as I can tell, the next earnings release for TOL should be at the end of Feb -- outside of Feb expiry but inside Mar.

Not only is the implied trading in the lower third for the year while earnings are near, but it's also trading below the two historical measures I like to use. Specifically:

IV30™: 34.64%
HV20™: 44.94%
HV180™: 44.20%

Let's turn to the Skew Tab, below.



We can see all of the front three months have a similar shape -- nothing unusual there. We can also see that the Mar ATM is priced above the other two expiries, which makes sense given the earnings event. What is a bit weird, or maybe interesting, is how close the Feb and Mar options are priced in vol.

Let's turn to the Options Tab for completeness.



We can see Feb is priced to 32.57% vol while Mar is priced to 34.96%. Looking specifically at the ATM vols, we can see ~33.5% and ~35.5% for Feb and Mar, respectively.

This is trade analysis, not a recommendation.

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