Interactive Brokers has shown strong performance in 2024 with a 113.5% year-to-date gain, including a 27% increase this quarter. Traders looking for a more conservative way to play Interactive Brokers stock using options might consider a bull put spread.
Interactive Brokers stock recently bounced above its 50-day moving average, offering an early entry point at around 171.
The company's key performance metric, Daily Average Revenue Trades (DARTs), showed significant growth with a 74% year-over-year increase in November and a 42% surge in Q3, driving commission revenue up 31%. Customer accounts grew by 28%. Third-quarter earnings grew 13% and sales increased 19%, both slightly missing estimates. Analysts project 18% earnings growth in 2024 and a 3% gain in 2025, following a 42% boom in 2023.
Interactive Brokers Stock: The Bull Put Spread
Since a bull put spread is a defined-risk strategy, you always know the worst-case scenario in advance. This type of trade will profit if Interactive Brokers stock trades sideways or higher. It even sometimes turns a gain if it trades slightly lower.
If you think Interactive Brokers stock will stay above 170 for the next few weeks, you could sell a 170-165 bull put spread with a Jan. 17 expiration date for around $0.80 per set of contracts, or $80, based on recent trading.
Selling this spread would generate roughly $80 in premium with a maximum risk of $420. If the spread expires worthless, we grab a 19% return in three weeks provided Interactive Brokers stock holds above 170 at expiration.
The maximum loss would occur if Interactive Brokers stock closes below 165 on Jan. 17, which would see the premium seller lose $420 on the trade.
Price Levels To Watch
The break-even point for the trade is 169.20, which is calculated as 170 less the $0.80 option premium per contract. I would set a stop loss if the loss is equal to the amount of premium received, which in this case would be $80. Sticking to this stop-loss level will help avoid large losses if the trade goes south.
According to IBD Stock Checkup, Interactive Brokers stock ranks third in its group and has a stellar Composite Rating of 98, an EPS Rating of 96 and a Relative Strength Rating of 95.
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
