Homebuilding giant Toll Brothers (TOL) represented one of the highlights in Barchart’s unusual stock options volume indicator, although it might be a distinction its investors could do without. While derivatives traders piled into TOL stock, the equity lost almost 14% of value in the open market last week.

As Zacks Investment Research reported, Toll’s erosion reflects “concerns over volatile mortgage rates, affordability-driven market softness, and anticipated pressure on gross margins for fiscal 2025, which likely weighed on investor sentiment.” Curiously, the luxury homebuilder disclosed earnings and revenues that surpassed Wall Street’s expectations. These metrics also increased on a year-over-year basis.

So, what’s causing the pain in TOL stock? Zacks explained that much of the headwinds center on forward-looking viability concerns:

As reflected in data from the National Association of Realtors (NAR), the median age of first-time homebuyers has reached a record high of 38 years, while the median age of all buyers is now 56 years. Additionally, first-time buyers comprised just 24% of the market over the past year, marking the lowest level over four decades. This shift has reduced demand from younger, less affluent buyers who are more sensitive to financial barriers.

In addition, Zacks brought attention to the tradeoffs that Toll had to endure to keep the train moving. Regarding the double-edged sword of incentives, the research firm stated that “[w]hile they played a key role in driving order growth and maintaining sales momentum, particularly in a challenging environment marked by rising mortgage rates and economic uncertainty, they also posed a drag on profitability and gross margins.”

At the same time, it’s also possible that bullish speculators could view TOL stock as a discounted opportunity. With a new administration coming in, there’s a certain excitement in the air. It would appear, then, that where TOL goes, it will do so with gusto.

Unusual Options Screener Doesn’t Provide Directional Clarity

In many cases, the unusual options screener provides some clues as to directional bias. As a mechanism to better understand what the smart money is doing with its funds, concentrated volume on the put or call side could offer insights. Unfortunately, that didn’t really happen on Friday with TOL stock.

On paper, total volume reached 12,317 contracts against an open interest reading of 81,781 contracts. Monday’s volume stood at 121.29% above the trailing one-month average metric. Curiously, though, call volume was only 4,199 contracts versus put volume of 8,118. This pairing yielded a put/call ratio of 1.93, which on the surface carries negative implications (more puts than calls).

However, options flow — which focuses exclusively on big block transactions likely placed by institutional investors — presented a much more nuanced picture. Net trade sentiment on Friday sat at $37,600 below parity, favoring the bears. Still, the pessimistic bias was quite marginal, making the matter difficult to read.

What was notable is that the bears appear to be heavily targeting the March 21, 2025 expiration date, especially the $125 strike price. TOL stock closed last week at $133.85, suggesting that the heavy hitters lack confidence. Additionally, a trader (or traders) sold $160 calls expiring June 20 of next year. Again, this transaction reinforces the idea of upside skepticism.

On the technical side, over the past five years, there have been seven weeks when TOL stock lost 10% of value or more. Generally, when such magnitude of red ink occurs, TOL tends to continue eroding. On the other hand, there have been notable instances when shares soared higher in response.

With that said, a long iron condor could be an appropriate idea for market gamblers.

Play the Volatility Game with TOL Stock

Frankly, trying to play the directional game could be a fool’s errand with TOL stock. While the underlying fundamentals appear bearish, sometimes, that doesn’t really matter. The market will do what the market will do. In this scenario, we arguably have little confidence in the direction of TOL. Instead, we just anticipate that it will move with conviction.

If so, the long iron condor — an options strategy that banks on kinesis — could be appropriate. Essentially, this particular condor represents the taking of risk that shares will move decisively higher or lower. Imagine the stock as the ball. The goal here is to cross the north endzone or the south endzone. Either one works fine.

Of the available long iron condors for the options chain expiring Dec. 27, the 131P | 134P || 140C | 143C statistically represents the safest wager, with a probability of profit at 55.9%. However, the payout is limited to 30.43%, involving a max reward of $70 for putting $230 at risk.

For those who want an extra kick of speculation, the 130P | 135P || 145C | 150C is tempting because TOL stock could easily drop to $130, which is 2.9% down from Friday’s close. It’s also possible for shares to rise to $150, as a bounce back to the 200-day moving average. That would require a 12% move from Friday’s close, which is rare but not unheard of.