It’s time to get paid in online payments processor and recent initial public offering PayPal Holdings Inc (PYPL). But now it’s the shorts turn to cash in using a long bear put strategy in PYPL stock. Let me explain.
PYPL stock has been very kind to our analysis of shares in 2016. Twice we’ve had nearly perfect bullish turning points in PayPal, in early February and then March.
Now we’re looking for a triple play for PYPL traders. In this instance however, we’re changing gears in anticipation of PayPal trading at much lower prices over the next several weeks.
Part of our about-face could be tied to the realization of growing competition for PayPal. While the company has carved out a niche for itself and is a first-mover, it may not be sustainable.
Of course, competition from the likes of Square Inc (SQ), or old guard payment giants Visa Inc (V) or MasterCard Inc (MA), could always wreak havoc.
The real threat, however, may just be mobile and desktop Apple Pay from Apple Inc. (AAPL) which has a massive customer base and high-tech, security-rich fingerprint technology that makes passwords obsolete and identity theft much more difficult.
Personally, we wouldn’t bet against Apple’s disruptor status in this important market space over the coming months and years. First things first though, the PYPL chart is telling us something is awry at PayPal already.
PayPal Stock Daily Chart
Click to Enlarge
The bad news is the staunch technical platform ultimately failed as PYPL tried twice to breakout to new highs and on both occasions came up short — and then some.
That same failure has resulted in PYPL stock breaking below a couple key lateral support levels. Additionally, with a bearish descending triangle and small flag pattern evident on the price chart; PYPL appears headed for much lower prices in the coming weeks.
PayPal Stock Long Bear Put Strategy
In reviewing the PayPal stock options board, the August $35 put is attractive in lieu of shorting PYPL stock.
With implieds near all-time-lows and priced for an affordable $1.25, the slightly out-of-the-money put gives bearish traders nearly two months of positioning with less than 4% PYPL stock risk per contract.
Bottom line though, should PYPL begin to move lower, I’d look to adjust into a low or possibly no-risk vertical spread. Similarly, while the PYPL put is cheap and does maintain a limited risk position profile, a 50% stop-loss is a good policy to consider.
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.
