PayPal Stock Bulls Ride 11-Month Win Streak Into Earnings

Options traders and analysts have been bullish toward PYPL

Oct 18, 2017 at 12:12 PM
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PayPal Holdings Inc (NASDAQ:PYPL) has been a major winner over the past year, adding roughly 69% year-over-year. The stock hit a record high of $69.61 on Oct. 13, and was last seen trading at $67.17, putting it on pace for a remarkable 11-month win streak. With the digital payments processor set to release earnings tomorrow, analysts and options traders are growing even more bullish on PYPL shares.

pypl stock

Citigroup and KeyBanc this morning raised their price targets on the equity to $77 and $75, respectively. The latter firm said it expects PayPal to beat earnings estimates and raise its outlook. This all comes one week after Morgan Stanley predicted record highs from the security.

Options traders also appear bullish. PYPL has a 10-day call/put volume ratio of 2.93 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), showing call buying has almost tripled put buying during the last two weeks. Plus, this ratio ranks in the 71st annual percentile, hinting at a stronger-than-usual preference for long calls over puts.

During this time, the November 70 call saw the largest increase in open interest, adding nearly 9,400 positions, compared to just 3,200 from the next closest position. Data from the major options exchanges confirms buy-to-open activity here, so options traders are betting on PYPL stock breaking out above $70 in the coming weeks.

Still, options traders targeting contracts that expire within three months are overwhelmingly put-skewed. This is due to huge open interest at the October 60.50 put. However, data shows most of these contracts crossed at the bid price back on Sept. 25, meaning these traders are betting on the equity holding above $60.50 through Friday's close, when the contracts expire.

Looking back, PayPal stock has been strong after earnings. The shares have moved higher the day after earnings in three of the last four quarters, including a 10.1% jump last October. This time around, the options market is pricing in a 6.4% swing from PYPL, in either direction.

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