The LEAPS Option Trader
105 W. Monument Street
Baltimore, MD 21201
Wednesday, August 25, 2004
Email – #194
** New Home Sales Dive – Toll Reports Earnings
New home sales plunged in July by 6.4%, June sales were also revised downward. At the same time, Toll Brothers (NYSE: TOL), our short position, is down a few cents after reporting record-breaking earnings. Hmmm – that’s strange. In fact, the company boosted its guidance for the year ahead as well. Maybe the fact that housing inventories increased to an 18-month high has something to do with it. Toll, in its report, mentions its demographic. It sells homes for $600,000 plus – not cheap.
I am firm in my belief that we are entering the beginning phases of a housing slowdown – not a crash, but a period of downward sloping prices and demand. Now, you would not know this from looking at my current surroundings. I am in Pasadena, enjoying the beautiful Southern California weather and checking on a couple of prospective plays. Here, a starter home will cost you more than a high-end Toll Brothers house. But, the value here is in the land, not the size of the box built on it.
Toll is a fine company. We are short the shares because I am more interested in the trend in the sector, and that trend on a macro level is not encouraging. The market almost caught on a couple of months back, but then decided that the housing weakness first noted in June was just an aberration. Now we have more evidence that housing is definitely not growing by leaps and bounds anymore. If this continues, you can bet that housing shares will be under pressure.
We have more than a year left on our option and a hard stop at $2.10 to find out.
Regards,
Karim Rahemtulla
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Current Portfolio:
Company / Symbol: Toll Brothers (NYSE: TOL)
Option / Symbol: Jan 06 $35 put (YKW-MG)
Date Purchased: 8/12/04
Current Price: $3.60
Comment: Hold. TS is $2.10.
Company / Symbol: Semiconductor Holders Trust (AMEX: SMH)
Option / Symbol: Jan 06 $40 call (YRH-AH)
Date Purchased: 7/23/04
Current Price: $1.85
Comment: Hold. No TS.
Company / Symbol: Semiconductor Holders Trust (AMEX: SMH)
Option / Symbol: Sold Jan 06 $45 call (YRH-AI)
Date Purchased: 7/23/04
Current Price: $0.90
Comment: Hold. Sold call against Jan 06 $40 position.
Company / Symbol: Ciena (Nasdaq: CIEN)
Option / Symbol: Jan 07 $5 call (VCB-AA)
Date Purchased: 6/22/04
Current Price: $0.50
Comment: Hold. No TS.
Company / Symbol: Ciena (Nasdaq: CIEN)
Option / Symbol: Jan 05 $5 call (EUQ-AA)
Date Purchased: 7/23/04
Current Price: $0.15
Comment: Hold. Sold call against Jan 07 $5 position.
Company / Symbol: Lucent (NYSE: LU)
Option / Symbol: Jan 06 $5 call (YXL-AA)
Date Purchased: 5/25/04
Current Price: $0.30
Comment: Hold. No TS.
Company / Symbol: Dynegy (NYSE: DYN)
Option / Symbol: Jan 06 $5 call (YNY-AA)
Date Purchased: 5/25/04
Current Price: $0.80
Comment: Hold. No TS.
Company / Symbol: Placer Dome (NYSE: PDG)
Option / Symbol: Sell Jan 06 $25 call (YDI-AE)
Date Purchased: 4/1/04
Current Price: $1.25
Comment: Hold. Sold call against Jan 06 $20 position.
Company / Symbol: Placer Dome (NYSE: PDG)
Option / Symbol: Jan 06 $20 call (YDI-AD)
Date Purchased: 1/23/04
Current Price: $2.10
Comment: Hold. No TS.
Company / Symbol: Nokia (NYSE: NOK)
Option / Symbol: Sell Jan 06 $30 call (WIK-AF)
Date Purchased: 2/9/04
Current Price: $0.10
Comment: Hold. Sold call against Jan 06 $30 position.
Company / Symbol: Nokia (NYSE: NOK)
Option / Symbol: Jan. 06 $22.50 call (WIK-AX)
Date Purchased: 8/29/03
Current Price: $0.20
Comment: Hold. No TS.
Company / Symbol: Chesapeake Energy (NYSE: CHK)
Option / Symbol: Sold Jan 06 $15 call (WZY-AC)
Date Purchased: 11/6/03
Current Price: $1.90
Comment: Hold. Sold call against Jan 06 $12.50 position.
Company / Symbol: Chesapeake Energy (NYSE: CHK)
Option / Symbol: Jan 06 $12.50 call (WZY-AV)
Date Purchased: 7/28/03
Current Price: $2.90
Comment: Hold. No TS.
Company / Symbol: S&P 500 MITT (AMEX: MCP)
Date Purchased: 7/18/03
Current Price: $10.21
Comment: Buy under $10. No TS.
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Bio:
Karim Rahemtulla is the former Investment Director of The Oxford Club. The editor of The Smart Options E-Report, The Income Trader – A Covered Call Strategy and The LEAPS Option Trader, Karim is also a regular contributor to The Oxford Club Communiqué. His highly successful trading systems use covered calls and LEAPS to boost returns on blue chip stocks, and during the bear markets of 2000 and 2001, his picks outperformed the major market averages. Educated in England, Canada and the U.S. and fluent in several languages, Karim travels the world to find the best investment opportunities for our members.
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