Paypal Holdings Inc: PYPL Stock Due for a Bounce

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Worries over Brexit and the Federal Reserve’s interest-rate policy have traders on edge — so much so that normally resilient payment processing stocks have taken a hit. Sector leaders Visa Inc (V) and Mastercard Inc (MA) have shed roughly 2% in the past week, with online upstart Paypal Holdings Inc (PYPL) following suit.

PYPL Stock
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However, while V and MA both look top-heavy from a technical perspective, PYPL could have some room to run, once Wall Street settles down. While resistance remains overhead in the $40 region, PYPL has pulled back to technical support in the $35/$36 area.

Furthermore, the stock’s emerging 200-day moving average is situated in the area, and could provide additional support. PYPL’s recent pullback also has the stock trading in oversold territory, making the shares attractive to bargain hunters.

Turning to the sentiment picture, we find that optimism is pervasive within the brokerage community. Specifically, 23 of the 41 analysts following PYPL rate the shares a buy or better. That said, there is room for price target increases, as the 12-month target of $44.10 represents a premium of about 20.7% to yesterday’s close.

Options traders are just as enthusiastic as their analyst counterparts. In fact, the July/August put/call open interest ratio currently rests at 0.27, with calls nearly quadrupling puts among options set to expire within in the next two months. Naturally, the $40 strike is the biggest target for call traders, with more than 18,500 call contracts open at this strike in the July series alone.

Overall, July implieds are pricing in a potential move of about 13.5% heading into next month. This places the upper bound at $38.46, while the lower bound lies at $34.54.

2 Trades for PYPL Stock

Call Spread: Those traders looking to side with the wealth of bullish sentiment levied against PYPL stock might want to consider a July $38/$39 bull call spread. At last check, this spread was offered at 28 cents, or $28 per pair of contracts. Breakeven lies at $38.28, while a maximum profit of 72 cents, or $72 per pair of contracts, is possible if PYPL stock closes at or above $39 when July options expire.

Put Spread: Between the Fed and Brexit, there is clearly the potential for the broader market to worsen considerably, taking PYPL stock with it. As such, traders looking to bet on a decline for PYPL might want to consider a July $35/$36 bear put spread.

At last check, this spread was offered at 30 cents, or $30 per pair of contracts. Breakeven lies at $35.70, while a maximum profit of 81 cents, or $81 per pair of contracts, is possible if PYPL stock closes at or below $35 when July options expire.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/06/pypl-stock-paypal-stock/.

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