PayPal Holdings Inc (PYPL) deserves some credit for taking on a leadership role during the broader market’s recovery the past month. It’s also time for a bullish payment into PayPal stock — where credit is still due, technically. Let me explain.
One month ago, this strategist penned a bullish piece on PayPal stock following a “great quarter,” detailing a limited risk bull call spread fitting of the deep pullback situation. “Kaaaacchhiingg!”
A near 167% return and profits of almost $1.25 in hand, PayPal stock is now displaying classic chart pattern and relative strength leadership worthy of another payment from bullish investors.
PayPal Stock Daily Chart
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Thus, when the brief chart history takes the shape of a classic double-bottom or “W” pattern, it’s bullishly significant. That’s what’s developing in shares of PayPal right now.
Unlike the rounded cup-with-handle structure, this pattern contains a couple to a few important price pivots, which are important to traders when positioning. We’ve detailed those in the provided daily chart of PayPal.
Currently, PYPL is forming a handle that’s successfully tested 62% and “mid-pivot #2” for support. From here, PYPL stock should move higher or otherwise negate the technically clean setup.
As a strategy, I like the idea of positioning off Wednesday’s low in the handle after testing key technical support, rather than waiting for a breakout entry.
As this style of positioning assumes the pullback in PayPal stock is complete, it’s important to respect the low or use a slightly wider stop of 1% to 2%. Failing that type action, the trader risks a larger and potentially unnecessary drawdown during pattern failure.
PayPal Stock Options Play
In reviewing the options board, the July $40/$45 bull call spread for up to $1.65 is attractive.
The out-of-the-money vertical requires a move of about 8% in PayPal stock to break even at expiration, and a fairly strong 17% gain to capture the full profit potential of $3.35 or return of roughly 200%.
The upside of the vertical is there’s plenty of calendar time for PayPal to make a significant move. It’s also positioned to participate in the next PYPL earnings announcement — a potential bullish catalyst.
At the same time, and as important, this spread reduces other unwanted Greek risks and helps better manage potential losses, should the PayPal stock chart fail to live up to its promise.
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.
