This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies. We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.
PayPal (PYPL) Dips Following Earnings, What’s Next?
PayPal slipped lower after reporting earnings in the past week. Take a look at what these analysts are saying about the stock post-earnings – PayPal Q2 Earnings Beat Estimates, Revenues Up Y/Y and PayPal’s Earnings May Have Disappointed but Its Chart is “BTF”.
Paypal dipped to the 50-day moving average on Thursday and held above the moving average on Friday. The stock trades at a confluence of support as there is also a horizontal level in play. The level comes in at $113.70 and acted as both resistance and support in the past. In the event the stock falls to hold here, there is further support from the 100-day moving average close to around $112.
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, or at least not decline very much.
Buy To Open PYPL 30AUG19 112 Puts (PYPL190830P112)
Sell To Open PYPL 30AUG19 115 Puts (PYPL190830P115) for a credit of $1.45 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when PYPL was trading near $115. 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 $142.50 and your broker would charge a $300 maintenance fee, making your investment $157.50 ($300 – $142.50). If PYPL closes at any price above $115 on August 30, both options would expire worthless, and your return on the spread would be 90% (1027% annualized).
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.
Tags: Auto-Trade, Bearish Options Strategies, Bull Put Credit Spread, Bullish Options strategies, Calendar Spreads, Calls, Credit Spreads, diagonal spreads, Earnings Announcement, Earnings Option Strategy, Earnings Play, implied volatility, Monthly Options, Portfolio, Profit, profits, Puts, PYPL, Risk, SPY, Stocks vs. Stock Options, Terry’s Tips, thinkorswim, Weekly Options