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Should You Buy the PayPal (PYPL) Earnings Dip?
PayPal recently reported earnings and this Zack’s article outlines why the stock price dipped despite beating estimates. Also, an author on Seeking Alpha outlines why the decline following earnings can be viewed as a merely a speed bump in the broader bullish trend.
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Technicals
PYPL did close earlier on the day after the earnings announcement, however, the bulk of last week’s decline took place on Friday as the markets reacted to US GDP figures and weak earnings in other technology stocks. This left PayPal stock at a major support confluence to end the week. The confluence consists of a horizontal level at 85.45 which was major resistance in the first quarter now turned to support, as well as the lower bound of a rising trend channel that originates from a low posted in early May. Although there was some momentum behind Friday’s decline, recent price action has not altered the bullish technical outlook for PYPL.
*source Tradingview.com
If you agree there's further upside ahead for PYPL, consider this trade which is a bet that the stock will continue to advance over the next five weeks, at least a little bit.
Buy To Open PYPL 31AUG18 83 Puts (PYPL180831P83)
Sell To Open PYPL 31AUG18 85.5 Puts (PYPL180831P85.5) for a credit of $0.98 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when PYPL was trading near $85.50. Unless the stock rallies quickly from here, you should be able to get close to this amount.
Your commission on this trade will only be $2.50 per spread (the rate charged by thinkorswim for Terry’s Tips’ subscribers). Each contract would then yield $95.50 and your broker would charge a $250 maintenance fee, making your investment $154.50 ($250 – $95.50). If PYPL closes at any price above $85.50 on August 31, both options would expire worthless, and your return on the spread would be 62% (707% annualized).
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Changes to Investor’s Business Daily (IBD) Top 50 This Week:
We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run. Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.
As with all investments, you should only make option trades with money that you can truly afford to lose.
Happy trading,
Terry
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Any questions? I would love to hear from you by email (terry@terrystips.com), or if you would like to talk to our guy Seth, give him a jingle at 800-803-4595 and either ask him your question(s) or give him your thoughts. seth@terrystips.com
You can see every trade made in the actual option portfolios conducted at Terry’s Tips and learn all about the wonderful world of options by subscribing here. Why wait any longer to make this important investment in yourself?
Even better, you can become a Terry’s Tips Insider, and receive all our educational reports and materials absolutely free by opening a new account at the best options broker around - thinkorswim. If you open an account with our link, they will give you 60 days of free trading or up to $600, the same deals they give to everyone who opens an account with them. You must use this link to sign up - open thinkorswim account – and once you have funded your account with at least $3500, email Seth@TerrysTips.com and let him know that you have done it, and this is what he will do – sign you for our Premium Service package ($119.95 value plus an extra 4 months of our Premium Service, valued at another $190.80). You get $300.65 worth of services without paying us one penny.
I look forward to having you on board, and to prospering with you.
Terry
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