Growth initiatives and a strategic price chart suggest investors are about to get paid in online payments processor PayPal Holdings Inc (NASDAQ:PYPL). For bulls, though, a long call spread in PayPal stock may be a less costly way to process that order. Let me explain.
There’s no doubt PayPal is in a competitive market niche. Tech heavyweights Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Samsung Electronics (OTCMKTS:SSNLF) are all vying for market share in the secular, up-and-coming, digital wallet space.
A PayPal stock investor need only consider Apple Pay to realize the threat. With a massive customer base and fingerprint technology, it’s not a stretch to think Apple could be a substantial disruptor.
Nonetheless, don’t make the mistake of counting PayPal out as an investment just yet.
The fact is PayPal is the long-standing leader in the technology-based payments space. What’s more, recent strategic partnerships with Visa Inc (NYSE:V) and MasterCard (NYSE:MA), plenty of cash (plus growth) already in hand and now, a supportive chart add up to getting paid in PYPL as a bull.
PayPal Stock Daily Chart
In late June, the PayPal stock chart was telling us something was bearishly awry. Shares of PYPL had broken key support, with a bearish descending triangle and small flag pattern hinting of lower prices to come.
That’s no longer the case.
Bears did manage to eke out several percentage points in PayPal stock, but ultimately the downside price action proved short-lived. Since hitting a summer and post-Brexit low of $34, shares of PYPL have muscled their way higher in a volatile but bullish base.
I’d personally define PayPal stock’s last six or so months as either an irregular cup-shaped or inverse head-and-shoulders formation. Our view is the technical interpretation is more or less semantics.
More important, both patterns confirm decent upside. Conservatively and despite modest pressure Wednesday, a price target of $45 to $47 in PYPL over the next couple months appears reasonable.
PayPal Stock Long Bull Call Spread
In reviewing the PayPal stock options board, the Jan $41/$45 bull vertical spread is attractive.
Priced for $1.59 as shares of PYPL trade near $41, the trader is in position to gain $2.41, or nearly 160%, if PayPal stock rallies about 9% through January expiration. That’s a nice blend of risk to reward and gives ample time for the required move to occur.
Also of benefit, the bull call spread shaves over 35% off the cost of a standalone January $41 long call. That’s courtesy of the $45 strike call positioned at the low end of our price target range for PayPal stock — and bottom-line, it’s a spread payment worth the purchase price.
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.
