The Trade Desk is showing elevated implied volatility with an IV Percentile of 54%. That said, options traders may want to look at an iron condor play in Trade Desk stock.
The IV figure in TTD means that the current level of implied volatility is higher than 54% of all other readings in the past 12 months.
Why is that? In part, the company is due to report earnings after the closing bell Wednesday. Naturally, we tend to see elevated implied volatility around that event.
Trade Desk stock has stayed within the expected range following three of the last six earnings announcements. In fact, for this upcoming earnings report, TTD stock is anticipated to stay in a 13.3% range up or down.
Options Trading Turns 50: Here's What Could Happen Next
Trade Desk Stock Today
Therefore, traders who think Trade Desk stock will not move too much following this Q1 report could look at an iron condor trade. As a reminder, this complex trade combines a bull put spread and a bear call spread. The idea with the trade? Profit from time decay while expecting that the stock will not move too much in either direction.
First, we take the bull put spread. Using the May 12 expiry, we could sell the 55 put and buy the 50 put. That spread recently sold for around $0.70. Then design the bear call spread. Place it by selling the 75 call and buying the 80 call. This spread could have generated around $0.55 in premium received.
In total, the iron condor will generate around $1.25 per contract or $125 of premium that goes into the trader's pocket for a block of 100 shares.
The Profit Zone
For this trade in Trade Desk stock, the profit zone ranges between 53.75 and 76.25. This can be calculated by taking the short strikes and adding or subtracting the premium received.
As both spreads are $5 wide, the maximum risk in the trade is 5 — 1.25 x 100 = $375.
Therefore, if we take the premium ($125) divided by the maximum risk ($375), this iron condor trade has the potential to return 33%.
If price action stabilizes, then iron condors work well. However, if TTD makes a bigger than expected move, the trade will suffer a loss. Trades held over earnings allow little room for adjusting, so they can be a bit hit-or-miss.
According to IBD Stock Checkup, Trade Desk stock ranks No. 1 in its group and has a Composite Rating of 96, an EPS Rating of 94 and a Relative Strength Rating of 95.
Trade Desk stock has been building a cuplike base within a much larger construction, offering a potential buy point at 66.45.
Arguably, a narrow handle formed in recent days, producing an even lower entry at 65.77.
Please remember that options are risky, and investors can lose 100% of their investment.
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 Twitter at @OptiontradinIQ
