Is The Trade Desk Stock Signaling a Rebound?

A surprising shift occurred in The Trade Desk shares on Wednesday, with the stock climbing more than three percent. This advance follows a disastrous year that saw the equity lose over 70 percent of its value. However, this price movement appears to be more than a simple technical correction, as activity in the options market indicates traders are positioning for further gains.

Despite the severe share price decline, the company's underlying business metrics tell a more resilient story. For the third quarter, The Trade Desk reported revenue growth of 18 percent, reaching $739 million. Its earnings per share of $0.45 also surpassed market expectations. In a significant vote of confidence, the company's board authorized a new $500 million share repurchase program in early November. This move is widely interpreted as management signaling that they believe the stock is undervalued.

The primary catalyst for the year-long sell-off has a clear name: Amazon. The e-commerce giant's advertising division is aggressively capturing market share and currently generates revenue 24 times greater than that of The Trade Desk. Fears that independent advertising platforms could be displaced have heavily weighed on investor sentiment. In response, analysts including those at Jefferies have adjusted their outlooks, most recently lowering their price target to $40 while maintaining a "Hold" rating.

Should investors sell immediately? Or is it worth buying The Trade Desk?

Options Traders Bet on Upward Momentum

Market sentiment appears to be shifting, according to derivatives data. The put/call ratio recently registered at just 0.67, a figure substantially below the typical reading of 1.05. This indicates that for every put option traded, multiple call options were purchased, reflecting a bullish bias among options traders. Concurrently, a rise in implied volatility suggests the market is anticipating significant price movements in the near term. This positioning is notable given that the stock continues to trade near its 52-week low.

A Precarious Technical Picture

From a chart perspective, the stock is navigating a critical juncture. The Relative Strength Index (RSI) had recently dipped into oversold territory, a condition that often precedes a technical rebound. However, a key resistance level looms overhead, with the 50-day moving average sitting well above the current price. The $37 level has now emerged as crucial support. A sustained break below this threshold could trigger a descent to new lows, while holding above it may allow for a period of stabilization. Current activity in the options market suggests many traders are betting on the latter scenario.