Back in April , I laid out a bullish thesis for a turnaround at PayPal (PYPL) . Despite the stock price slipping about 6% over the past couple of months since my initial trade, the fundamentals have continued to improve and now the charts present another opportunity to gain long exposure in PYPL, where the risk/reward is quite attractive around the $60 level. After peaking back in July of 2021, the stock has declined nearly 80% and has spent the last 12 months forming a bottoming formation and has stabilized its decline. The question is, when is the stock potentially ready to breakout higher? If we start with a longer-term chart, we see a bottoming formation that is a sign of a bearish to bullish reversal forming with an inverted head & shoulder formation. And if we zoom in, the stock has largely traded within a $58-68 range for about 6 months and as we approach the bottom end of that range with oversold conditions, the risk to reward for adding long exposure at these levels are attractive. Now if we examine the fundamentals, the business has started to look more compelling over the past couple of quarters. PYPL trades at 25% discount to the average S & P 500 stock, despite analysts expecting the company to grow EPS by 16% and revenue by 7% over the next few years. This has been revised higher on the back of their recent earnings beat. With improving net margins at 14%, PYPL should be trading at a slight premium to the average S & P 500 stock in terms of valuation, suggesting at least a 25-30% upside from here. The trade Based on the implied volatility, options are not particularly cheap or expensive, but the skew benefits selling a put credit spread. Going out to the August 2 nd weekly expiration, I’m selling the $59/$55 put vertical at a $1.56 credit, which is 39% of the vertical width. This entails: Sold the Aug 2 $59 Puts at $2.90 Bought the Aug 2 $55 Puts @ $1.34 This strategy would risk $244 per contract if PYPL is below $55, while potentially profiting $156 per contract if PYPL stays above $59 at expiration. DISCLOSURES: (None) 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.
