It’s time to consider making a payment of sorts in PayPal Holdings Inc (NASDAQ:PYPL) following a strong corporate confessional. For investors, one way to shell out less money is using a PayPal stock long call spread to process the order. Let me explain.
One month ago we wrote about PayPal stock’s bullish prospects both off and on the chart in the face of acknowledged competitive threats from tech heavyweights such as Apple Inc. (NASDAQ:AAPL) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL).
Now and with earnings out last Thursday, PayPal stock appears to be confirming the company’s solid position within the secular growth, digital wallet space. A glance at PayPal stock’s headline profit match and modest revenue beat may suggest the company issued run-of-the-mill results.
Beneath the surface though, it’s a more bullish narrative.
Digging slightly deeper into PayPal’s results, the real story is the surging mobile revenues and double-digit growth for payment volume, transactions processed and active customers witnessed over the last year — and that story has obviously caught investors’ non-digital wallets.
PayPal Stock Daily Chart
A bullish six-to-seven-month consolidation just got a whole lot more interesting for investors wanting to position for upside in PayPal.
On the heels of its earnings report, shares of PYPL surged by roughly 10%. The bullish, high-volume price thrust confirmed a pattern breakout from a cup-shaped or inverse head and shoulders base to all-time-highs.
Last month, our price target for PayPal stock on an anticipated breakout from the base was estimated to be in the range of $45 to $47. Monday’s high of $44.52 in the immediate aftermath of the release, was close to the low end of the prior forecast.
Given the strong bullish confirmation and a fairly simple pullback that’s finding support above prior pattern resistance, I believe the price target in PayPal stock can be nudged higher. In light of everything that has occurred off and on the chart, $46 to $48 in PayPal stock over the next couple months looks reasonable.
PayPal Stock Long Bull Call Spread
In reviewing the PayPal stock options board, the Jan $45 / $47 bull vertical call spread is attractive in lieu of owning shares of PYPL outright.
Priced for 60 cents with PayPal stock at $43.31, the limited risk spread can achieve a profit of $1.40 or return of 233% if shares are able to rally by 8.5% and close above $47 at January expiration.
Verticals like this spread ultimately reduce options risks such as time decay and volatility exposure. And while there are counters to these benefits, such as slower-to-materialize and capped profits, at the end of the day the payment looks like a cost-effective way to position in PayPal stock.
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.
