Blake just identified which homebuilder is sitting on a debt bomb.
Existing home sales barely moved despite mortgage rates dropping below 6%. The market celebrated a tiny 1% uptick as if the housing crisis is over.
Wrong.
Blake ran the numbers on every major homebuilder. He analyzed quick ratios, inventory turnover, and current ratios to find which companies will struggle when sales slow even slightly.
The winner? Toll Brothers.
Their quick ratio is 0.34, meaning they can survive about four months without selling a single home. Compare that to Lennar at 4.68 or NVR at 2.0. Toll Brothers has the worst inventory turnover in the sector and needs constant sales to service their debt load.
The technical setup confirms the fundamental weakness. Lower highs and lower lows all year. The stock is potentially forming another bear flag that targets $116, a 15% drop from current levels. Blake sees this move happening before their next earnings report, with potential for even more downside after the numbers hit.
Here’s what makes this trade compelling:
- Options volatility sitting in the 20th percentile (bottom fifth)
- Monthly contracts available for extended timeframes
- Ability to structure diagonal spreads that eliminate time decay
- Government shutdown delaying economic data that could expose housing weakness further
Blake details a specific diagonal spread structure using January puts that collects enough premium to nearly pay for the entire trade. By selling short-term premium against a longer-dated put, you can position for a significant move lower while minimizing your cost basis to around $4 for a potential $20 spread.
The housing market got a brief reprieve from lower rates. That window is closing. Blake explains why Toll Brothers is the first domino to fall when buyers stop showing up.
