Phil McDonnell Trade: AMTD

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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