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Buy Call PYPL

November 3, 2022
Adjust PYPL/SBUX Preview: Sell your PYPL March 97.5 Calls, and Buy the March 80 Calls (no new capital at risk)

Today after the close both PYPL and SBUX will report earnings. Here are my thoughts …

First, we are going to hold both positions through the event. While the market looks suspect yet again coming off the Federal Reserve announcement, there are pockets of positives under the surface.

However, we are not going to sit with our current PYPL position, as those calls are too far out of the money to truly work. For that reason, we are going to sell our March 97.5 Calls, and roll to a buy of the March 80 calls … though of note, we are not putting new capital to work in this trade.

To execute this trade you need to:
Sell to Close the PYPL March 97.5 Calls
Buy to Open the PYPL March 80 Calls

What I mean by no new capital to work is if you originally bought 10 calls, today you will sell those calls, and buy 4 March 80 calls (approximately), which would not expose you to even greater losses should PYPL sell off on earnings.

In terms of SBUX, I am going to continue to hold my position.

Originally, we bought half of a position, and then took partial profits soon after. Because we have such a small position, let’s take the earnings risk.

PYPL - With the stock trading at 77, the options market is pricing in a move of $9 this week, or 68 to the downside and 86 to the upside.
Open interest is bullish on a ratio of 1.2:1 call vs. put.
Skew is pricing in downside risk and upside interest.

SBUX - With the stock trading at 85, the options market is pricing in a move of $4 this week, or 81 to the downside and 89 to the upside.
Open interest is skewed bullish on a ratio of 2.5:1 call vs. put.
Skew is pricing in downside risk and upside interest.

September 8, 2022
Buy the PayPal Holdings (PYPL) March 97.5 Calls (exp 3/17/2023) for $14.50 or less.

As I noted yesterday, PayPal (PYPL) had surged to the top of my watch list following relatively strong stock performance throughout the recent market pullback, as well as bullish call activity, including these trades from Tuesday:

Tuesday - Buyer of 2,000 PayPal (PYPL) March 110 Calls for $7.10 – Stock at 91.5Tuesday - Buyer of 3,000 PayPal (PYPL) March 100 Calls for $10.40 – Stock at 91.5.

Throw on top of the strong stock action and option activity, there has been improving action in off-the-bottom growth peers such as UBER/PINS/etc., and the fact that activist investor Elliot Management has taken a stake in the company leads me to believe adding PYPL to the portfolio today is a good risk/reward opportunity.

To execute this trade you need to:
Buy to Open the PYPL March 97.5 Calls.

The most you can lose on this trade is the premium paid, or $1,450 per call purchased.

The risks I see in this trade are largely market related. And there is no doubt that there IS market risk, as a bad day or two could send the indexes spiraling right back to the June/July lows.

That being said, should the market get in gear, I like the upside to this position given the many positives noted above, as well as the analyst community ramping up their price targets on PYPL shares, as noted below:

8/31 - BofA upgraded PayPal to Buy from Neutral with a price target of 114, up from 94.

For the first time in about a year, the analyst sees upside potential to estimates for PayPal, which he expects will be driven primarily by additional cost efficiencies and share buybacks.

These initiatives are likely to be pushed for by activist Elliott Management, who notes that PayPal’s new CFO, Blake Jorgensen, has a track record of “executing well on cost/margin initiatives.

8/23 - Baird outperform rating, and a 120 price target.

The analyst continues to like PayPal as a second half of the year idea with easing growth comps and accelerating growth amid improving e-commerce trends. PayPal also continues to take share in its core digital wallet market, while benefiting from a leaner expense profile and maintaining an active share repurchase program.

Post Earnings - BMO Capital raised the firm’s price target on PayPal to 124 from 114 and keeps an Outperform rating on the shares.

The analyst is positive on the company’s Q2 cost beat and higher FY22 guidance while noting that PayPal’s revenue headwinds from FX and economic deceleration should be offset by margin expansion and capital return from its new $15B buyback authorization.

Post Earnings - Barclays raised the firm’s price target on PayPal to 131 from 125 and keeps an Overweight rating on the shares post the earnings report.

PositionPYPL March 97.5 Calls
Position StrategyBuy Call
Opened DateSeptember 8, 2022
ExpirationMarch 17, 2023
Net Price13.57
Strike97.5
Jacob Mintz is a professional options trader and editor of Cabot Options Trader. Using his proprietary options scans, Jacob creates and manages positions in equities based on unusual option activity and risk/reward.