The Trade Desk (TTD) Has the Potential to Break to an All-Time High

This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies.  We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.

Several stocks have already broken to all-time highs and TTD looks poised to join this group. Check out the following two articles that both suggest that while TTD might be a bit expensive, it is a top pick among investors – The Trade Desk: Capturing A Revolutionary Trend and Investing in These 3 Top Stocks Could Double Your Money.

Technicals

TTD has shown strong upward momentum since the start of April. Dips have been shallow as buyers are quick to step in. Resistance near $324 has triggered a bit of pullback over the past few weeks which is to be expected considering it marks the previous all-time high. But the general lack of selling pressure from $324 is a sign of strength. Combined with the strong upward momentum as of late, a strong case can be made that the stock is headed to all-time highs. Technical support for the stock is seen at $280 which is considered significant as it acted as a major barrier over the summer last year.

TTD Chart May 2020

If you agree there’s further upside ahead for TTD, consider this trade which is a bet that the stock will continue to advance over the next five weeks, or at least not decline very much.

Buy To Open TTD 26JUN20 305 Puts (TTD200626P305)
Sell To Open TTD 26JUN20 307.5 Puts (TTD200626P307.5) for a credit of $1.18 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when TTD was trading near $308.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will only be $1.30 per spread.  Each contract would then yield $116.70 and your broker would charge a $250 maintenance fee, making your investment $133.30 ($250 – $116.70).  If TTD closes at any price above $307.5 on June 26, both options would expire worthless, and your return on the spread would be 88% (1004% annualized).

Changes to Investor’s Business Daily (IBD) Top 50 This Week:

IBD Underlying Updates May 23, 2020

We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run.  Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry