Trade Desk (TTD) recently crashed after earnings, but the stock still has strong long-term potential despite its first earnings miss in 33 quarters.
Revenue in 2024 was 54% higher than in 2022, with adjusted EPS up 60% and free cash flow rising 38%, showcasing solid financial health.
Management slowed its AI platform rollout to refine features, while a December 2024 internal reorganization contributed to temporary setbacks.
The company’s CTV business is its biggest growth driver, with Ventura, its new CTV operating system, launching this year alongside key partnerships with VIZIO and Walmart.
Valuation has contracted by 46%, offering a potential buying opportunity as gross margins remain at 80% and EBITDA margins at 39%.
If The Trade Desk executes well on its AI and CTV strategies, the recent pullback could be a strong entry point for long-term investors.
TTD BULL PUT SPREAD
Today, we’re going to look at a bull put spread trade, but instead of using a regular monthly expiration, we will look at a slightly longer-term trade.
Longer-term option trades tend to move a little slower than shorter-term trades. That allows more time to adjust or close, but also means a lower annualized return.
It also allows more time for the trade thesis to play out.
As a reminder, a bull put spread is a bullish trade that also can benefit from a drop in implied volatility.
The maximum profit for a bull put spread is limited to the premium received while the maximum potential loss is also capped. To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.
Implied volatility is currently sitting at 47.04% which gives TTD and IV Percentile of 61% and an IV Rank of 38.60%.
To create a bull put spread, we sell an out-of-the-money put and then by a put further out-of-the-money.
If we go out to May, we could sell the May 16 put with a strike price of $60 and buy the $55 put, which would create a bull put spread.
This spread was trading yesterday for around $0.85. That means a trader selling this spread would receive $85 in option premium and would have a maximum risk of $415.
That represents a 20.5% return on risk between now and May 16 if TTD stock remains above $60.
If TTD stock closes below $55 on the expiration date the trade loses the full $415.
The breakeven point for the bull put spread is $59.15 which is calculated as $60 less the $0.85 option premium per contract.
That breakeven price is around 21.1% below yesterday’s closing price.
Conclusion And Risk Management
One way to set a stop loss for a bull put spread is based on the premium received. In this case, we received $85, so we could set a stop loss equal to the premium received, or a loss of around $85.
Another way to manage the trade is to set a point on the chart where the trade will be adjusted or closed. That could be if the stock breaks through the key level of $65.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
On the date of publication, Gavin McMaster had a position in: TTD . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
