Shareholders are quickly discovering PayPal Holdings Inc (NASDAQ:PYPL) is an accurately named stock. It’s undoubtedly their pal. One who has coddled them all year long with a low volatility ride to the moon. Turbulence for PYPL stock has been minimal, downturns virtually non-existent.
And it’s also made good on the whole “pay” part. What with a year-to-date gain of 50% and all. Time will tell if the benevolence in PayPal keeps on coming, but I certainly wouldn’t bet against it.
In fact, those willing to wager for a continuation of the good times will be happy to know PYPL is forming a clean pull back following last week’s earnings beat.
In case you missed it, PayPal shares popped to a new record high of $61.30 after delivering an estimate-beating 46 cents earnings per share.
PYPL Charts
The analysis of PayPal’s price action is quite simple. It’s in a solid uptrend with rising moving averages across the board. The post-earnings profit-taking is carrying the shares close to the 20-day moving average which has been a gathering ground for dip buyers in the past. Watch for support to materialize in the $57.50 area over the coming days.
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With its earnings report fading in the distance, you would think implied volatility would have dropped precipitously, but it hasn’t. With an IV rank of 60%, PYPL still boasts expensive options, and that has me eyeing a bull put spread play.
Sell the Sept $55/$52.50 bull put spread for 32 cents or better. Think of this as a bet that PYPL stock remains above $55 (basically the 50-day moving average) for the next 45 days. If it does, you will capture the max reward of 32 cents.
The max risk is $2.18 and will be forfeited if PayPal falls below $52.50. Of course, you can always jump ship early if the stock gets shaky. I suggest using a break of the 50-day moving average as your signal to exit.
In timing your entry, try waiting for PYPL to break above a prior day’s high before pulling the trigger. That will confirm that buyers have indeed stepped up.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.
