DailyPlay – Opening Trade (PYPL) – June 21, 2024

PYPL Bullish Opening Trade Signal

Investment Rationale

Back in April, I laid out a bullish thesis for a turnaround at PayPal. Despite the stock price slipping about 6% over the past couple of weeks, 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.

Technical Analysis

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. We see a bearish to bullish reversal with an inverted head & shoulder formation on the longer term chart. And if we zoom in, the stock has traded within a $58-68 range for 6 months and we approached the bottom end of that range with oversold conditions, the risk to reward for adding long exposure at these levels are attractive.

PYPL – Daily

Fundamental Analysis

Now if we examine the fundamentals, the business looks even more compelling over the past couple of quarters. PYPL trades at 15x forward earnings, a 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 recently 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.

Trade Details

Strategy Details

Strategy: Short Put Vertical Spread

Direction: Bullish Credit Spread

Details: Sell to Open 8 Contracts August 2nd $60/$56 Put Vertical Spreads @ $1.38 Credit per Contract.

Total Risk: This trade has a max risk of $2,096 (8 Contracts x $262) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $262 to select the # contracts for your portfolio.

Counter Trend Signal: This is a bullish trade on a stock that is expected to bounce higher off support.

1M/6M Trends: Bearish/Bearish

Relative Strength: 3/10

OptionsPlay Score: 83

Stop Loss: @ $2.76 Debit. (100% loss to the value of premium received)

View PYPL Trade

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

PLEASE NOTE that these prices are based on Thursday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

View PYPL Trade