Published On: Wed, Feb 15th, 2017

Year ahead looks promising for online broker TD Ameritrade

InstaForex


TD Ameritrade, a holding company with 40% ownership of Canada’s Toronto-Dominion (TD) bank is the second largest online broker in the US. TD reported its results for Q1 on January 18, which were largely in line with market estimates. Though revenue was better than expected, expenses rose a tad due to technology investments made by the financial company.

Active investors, along with rising interest rates, 10% organic growth in assets, new products and a recent acquisition of Scottrade could fare well for the Omaha-based broker in the coming year. On the negative side, commission cuts from rivals like Charles Schwab could put some pressure in the industry and more particularly TD Ameritrade. 

The company’s shares seem to have firmed up and established a short-term support near $ 41.25 and could present a good opportunity over the next several months. 

TD Ameritrade’s share price chart

Source: Saxo Bank

As we do not own shares of AMTD in our account we will acquire them in the market and simultaneously sell a covered call. The process is also referred to as a buy-write or buy and sell.

Management and risk description

The strategy of selling a call against shares you purchase or already own does not increase the risk in owning the shares. On the contrary, the premium received contributes to the “bottom line” and provides for a little bit of a down side protection.

Otherwise, the risk in covered call is unlimited as the underlying stock could potentially but not very likely become worthless

Still, we are going to monitor the shares closely.

Parameters

Underlying price: $ 43

Trade status: opening

Trade: buy 100 shares of AMTD at $ 43; sell -1 17 March 17 45 Call at $ 0.40.

Net investment equals $ 42.60.

Breakeven: $ 42.60.

Maximum gain at expiration: $ 2.40 (difference between sold call and initial investment).

Maximum loss: potentially unlimited, if share price falls to zero.

ROR: 5.3%

Entry: Today, as two separate orders.

Stop: No stop. 

Target: $ 45.

Time horizon: 30 days.

— Edited by Robert Ryan

Non-independent investment research disclaimer applies. Read more
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