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Phil McDonnell Trade: AMTD

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TD Ameritrade (AMTD) is once again looking interesting to me. The stock has been in an uptrend for the last year and appears to be ready to continue that trend. I always like to check that a good momentum stock has not over shot in the valuation department. In this case it has not.

Currently the forward PE ratio is 21X. I expect the earnings will grow by about 20% in the next 12 months. The company seems to enjoy a strong competitive advantage as demonstrated by its operating margin of 37% and profit margin of 23%. The return on equity is 14% so the company should generate enough profits for future growth. For this combination of momentum and solid fundamentals I would look to a put sale or the sale of a credit spread.

Trade: Sell to open AMTD Nov 25 puts at $0.19.

This is another example of a high probability trade. Our goal in this trade is to wait it out and let the option expire giving us 100% cash return on the trade.

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At the time of publication, Phil McDonnell held no positions in the stocks or issues mentioned.


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