Unusual Options Activity: Paypal (PYPL)

Paypal (PYPL)

Trader bets on rally through month-end.

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  • February 28th $123 call options on Paypal (PYPL) recently saw a 44-fold rise in volume. Over 7,010 contracts traded against a prior open interest of 161.

    The bet, expiring in 10 days, is right at-the-money, given a recent share price of $122.99. It should move dollar-for-dollar upward with shares, less the time premium.

    The buyer of these options paid about $2.00 each, so shares will need to hit $125 by the end of the month to profit.

    Shares of the alternative payment company have risen 27 percent in the last year, beating the overall S&P 500 index by about 5 points.

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  • Action to take: Overall, the valuation looks a bit stretched here. That’s because the company reported a 17 percent rise in revenues in the past year, but earnings declined 13 percent. That kind of mix isn’t as bullish as we like. And the company’s profit margin is only 13 percent, well below that for other financial intermediaries like those in the credit card space.

    Those caveats withstanding, shares are in an uptrend right now, and that trend is likely to continue. Shares should continue higher, which bode well for these options. It’s a good speculation for the second half of this month.

    For investors, shares look a bit expensive here. While they may head higher, those looking to buy for the long term should consider a lower price point. We think $115 for shares is fair, and a price shares would be likely to get to on a downturn in shares.