If you agree that PYPL will stay above its 20-week moving average, consider the following trade that relies on the stock remaining above $250 through expiration in six weeks. Buy to Open PYPL 18Jun21 240 Put (PYPL210618P240) Sell to Open PYPL 18Jun21 250 Put (PYPL210618P250) for a credit of $3.60 (selling a vertical) This credit is $0.05 less than the mid-point of the option spread when PYPL was trading at $253. Unless the stock rallies quickly from here, you should be able to get close to this amount. Your commission on this trade will be only $1.30 per spread. Each spread would then yield $358.70. This trade reduces your buying power by $1,000 and makes your net investment $641.30 ($1000 – $358.70). If PYPL closes above $250 on June 18, both options will expire worthless and your return on the spread would be 56% ($358.70 / $641.30).
As with all investments, you should only make option trades with money that you can truly afford to lose.
Happy trading,
Terry |