Following a well-received earnings beat, PayPal (PYPL) stock is setting up an opportunity for bullish investors to make a timely payment to get long PYPL with less risk.
PayPal stock recently experienced a “great quarter” according to TheStreet’s Jim Cramer.
What’s not to like? Aside from beating estimates, PayPal stock has a massive buyback program behind it, it’s a growth business and the company apparently has Millennials’ wallets — or, more accurately, their banking information.
Investors, for their part, sent PayPal stock up over 8% in the report’s immediate aftermath in late January. That’s the kind of support we like to see, as well as what we’re now spying on PayPal stock’s daily chart.
PayPal Stock Daily Chart
The daily chart of PayPal stock is showing solid overall technical support and indicating higher prices for PYPL shares.
The recent initial public offering in PayPal stock has formed a double- or what some might call a triple-bottom pattern as reflected by the labeled pivots in the provided chart. That’s bullish support.
More recently, while the last couple weeks have proven volatile in PayPal stock, shares of PYPL have established additional support from a bullish earnings reaction and a gap fill completed by a hammer, reversal candlestick.
For technical purists and maybe bullish traders with a shorter time horizon in PayPal stock, a breach of Monday’s hammer low of $31.98 in PYPL would be undesirable.
Other bulls using the price chart might see pivot support at $30 in PayPal stock as more critical for exiting if broken.
My technical take lays between the two. I like the $31 level as the line in the sand for bulls in PayPal stock as I view it as pragmatic within a volatile and less-than-stable market environment that may be offering value, but one we’re not fully committed too.
PayPal Stock Long Bull Call Strategy
For bullish traders looking to initiate a position in PayPal stock, the March $35/$37 bull call spread for up to 75 cents is attractive. The modest purchase price allows for a sufficient holding period without going overboard and while maintaining limited risk.
The out-of-the-money vertical requires about 10% of upside at expiration in PayPal stock in order to maximize the spread’s full profit potential of $1.25 and return of 167%.
Additionally, the use of selling premium to form this PayPal stock vertical reduces volatility, time decay and directional risks for more effective position management and factors, making it well worth traders’ consideration.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT
