Despite a trend higher in recent months, online payment platform PayPal (PYPL) is still down 21 percent over the past year. One trader expects shares to trend lower in the coming weeks.
That’s based on the February 9 $51 puts. With 28 days until expiration, 6,005 contracts traded compared to a prior open interest of 113, for a 53-fold rise in volume on the trade. The buyer of the puts paid $0.39 to make the bearish bet.
PayPal shares recently traded for about $61, so they would need to drop about $10, or about 14 percent, for the options to move in-the-money.
The strike price of the options is near the stock’s 52-week low of $50.25, set in late October.
Operationally, the company had a mixed year. Revenues rose by 8 percent, but earnings slid by 23 percent.
Action to take: Shares are slightly overbought after their recent run. And PayPal didn’t run as high on a percentage basis as other payment companies in recent months. It’s likely shares may be in for some downside ahead.
Interested investors should wait to buy until after a selloff, and ideally when the stock hits oversold conditions.
For traders, the February 9 puts play to a short-term downtrend, and are inexpensive enough to see mid-double-digit returns, even if the option doesn’t move in-the-money.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.