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This payments stock has broken out of a 2-year sideways pattern. Using options to play it
Back in April and June , I laid out a bullish thesis for PayPal — that it was bottoming and had the potential to breakout. Since that article, we have continued to see PayPal improve and earlier this week, it finally broke out from its two-year consolidation and triggered a new bullish signal for investors to seek further exposure in PayPal. On the weekly chart, PayPal has decisively broken through a major resistance at $68 — a level it has been struggling with during its consolidation phase. This breakout, coupled with improving momentum and outperformance relative to the market, suggests that PayPal is poised for a continuation higher. The next upside target for this bullish trend is around the $90 level. Despite the past challenges, PayPal remains fundamentally undervalued. It trades at only 15 times forward earnings, which is attractive given its future earnings per share growth rate of 14%, revenue growth rate of 8% and competitive net margins of 14%. These metrics indicate that PayPal is not only undervalued relative to its growth potential but well on its way for its turnaround. The trade To capitalize on the breakout higher, I suggest buying the Oct. 18, 2024, $70/$80 Call Vertical for a $3.77 Debit. This entails: Buying the Oct. 18, 2024, $70 Calls @ $4.83 Selling the Oct. 18, 2024, $80 Calls @ $1.06 This call vertical spread allows us to benefit from the bullish trend while limiting our risk. The total potential profit on this trade is $623 per contract if PYPL is above $80 at expiration, with a maximum risk of $377 per contract if PYPL is below $70 at expiration. This strategy aligns with our bullish technical and fundamental thesis for PYPL. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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