Square, PayPal Stocks Nab Record Highs After Bull Notes

Both PYPL and SQ options are attractively priced, too

by Patrick Martin

Published on Aug 29, 2018 at 10:31 AM

Payment processing stocks PayPal Holdings, Inc. (NASDAQ:PYPL) and Square Inc (NYSE:SQ) have been battling it out on the charts over the past year. Shares of both PYPL and SQ are continuing this outperformance today, following a round of bullish analyst attention 

PayPal Stock Poised For Best Month Since January

At last check, PayPal stock was up 2.1% to trade at $92.49, and fresh off a new record high of $92.36, after Jefferies issued a price-target hike to $110 from $100. The analyst in coverage called payments app Venmo an important growth driver for the company.

PYPL stock pulled back in late July, but the dip was contained by its 80- moving average. A quick rally from here has the equity heading towards its best month since January, up 12.6% so far in August. 

Those wanting to speculate on PYPL stock may want to consider doing so with options. Its Schaeffer's Volatility Index (SVI) of 21% ranks in the 7th annual percentile, meaning short-term options are pricing in lower-than-usual volatility expectations at the moment, a boon to potential premium buyers.

Square Stock Overdue For Upbeat Analyst Attention

Square stock is up 3.6% to trade at $83.71, and earlier hit a fresh record high of $83.97, after Guggenheim named it a "new best idea," citing the role the company's Cash App plays in the underbanked population. The brokerage firm also boosted its price target to $100 from $75, a 24% premium to last night's close.

SQ appears set for its seventh straight record close, and has now more than doubled in 2018 -- and the shares seem ripe for more bull notes. Of the 29 brokerages covering SQ, 16 rate it a "hold" or "strong sell." In addition, the security's consensus 12-month price target of $69.59 is a 16.4% discount to its current perch. 

There is also ample pessimism to be unwound in the options pits. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows SQ with a 10-day put/call volume ratio of 0.59, which ranks in the elevated 91st percentile of its annual range. This means that although calls have outnumbered puts on an absolute basis, the lofty percentile ranking indicates puts have been purchased relative to calls at a faster-than-usual clip during the past two weeks. 

Like its sector peer, it's an attractive time to buy premium on short-term SQ options, considering how cheap they are, from a volatility perspective. This is based on the stock's SVI of 38%, which ranks in the 15th annual percentile.

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