With Trade Desk breaking out to new highs, we can use options to take some exposure in a limited risk way. Let's look at a bull call spread trade in Trade Desk stock.
Investors interested in gaining bullish exposure can do so with much lower risk through a bull call spread. Create this setup by first buying a call option, then selling a further out-of-the-money call.
Selling the further out-of-the-money call reduces the cost of the trade, but it also limits the upside.
Trade Desk Stock Today
Going out to the December expiration for Trade Desk stock, a 115-strike call option was trading around $6.30 per contract and the 120 call around $4.75, according to recent trading.
Buying the 115 call and selling the 120 call would create a bull call spread. The trade cost would be $155 (difference in the option prices multiplied by 100), based on recent trading. This sets the maximum potential profit at $345 per set of contracts. Calculate this by taking the difference in strike prices, multiplied by 100 less the premium paid).
A bull call spread is a risk defined strategy, so if TTD stock closes below 115 on Dec. 20, the most the trade could lose is the roughly $155 premium paid.
Potential gains get capped above 120. So, no matter how high Trade Desk stock might go, the most the trade could profit is $345. The break-even price for the trade is equal to the long call strike plus the premium, which in this case would equal 116.55.
In terms of trade management, if the stock dropped below 98, I would consider closing early for a loss.
No. 1 In IBD's Advertising Industry Group
According to IBD Stock Checkup, Trade Desk stock ranks No. 1 in its group and has a Composite Rating of 98, an EPS Rating of 97 and a Relative Strength Rating of 90.
Trade Desk is due to report earnings in early November, so this trade would have earnings risk if held through then.
Trade Desk provides a platform for advertising. On its self-service, cloud-based platform, ad buyers create, manage and optimize data-driven digital advertising campaigns. They include display, video, audio, native and social campaigns on a multitude of devices including computers, mobile devices and connected TV.
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.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ
