Paypal Holdings Inc (PYPL) Call Players Brush Off Apple Pay Blow

Paypal Holdings Inc (NASDAQ:PYPL) has found support in the $38 region amid an Apple-induced tumble

by Karee Venema

Published on Mar 24, 2016 at 2:52 PM

Rumors that Apple Inc. (NASDAQ:AAPL) will expand its Apple Pay base are pressuring electronic payment processor Paypal Holdings Inc (NASDAQ:PYPL) today. At last check, the stock was off 3.5% at $39.10, after finding a foothold in the $37.50-to $38 region -- home to its 30-day moving average -- which worked as resistance in late 2015 and early 2016, but has more recently served as support. Despite today's slip, calls are once again flying off the shelves -- although not all of the activity is of the traditional "vanilla" kind.

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Taking a quick step back, roughly 28,000 calls have changed hands -- double what's typically seen at this point in the day, and nearly five times the number of puts traded. Most active is PYPL's weekly 4/29 42-strike call, where it looks as if there may be a mix of buy- and sell-to-open activity occurring.

For those purchasing new positions, the goal is for PYPL to rally north of $42 by the close on Friday, April 29 -- when the weekly series expires. Conversely, those writing the calls to open are betting that $42 will serve as a ceiling for the shares over the next five weeks.

More broadly speaking, today's penchant for calls over puts just echoes the withstanding trend seen in PYPL's options pits. In fact, the stock's gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 0.32 indicates near-the-money call open interest more than triples put open interest among options expiring in three months or less. What's more, call open interest on PYPL is at an annual high.

Outside of the options pits, skeptics have been rushing PYPL of late. Short interest, for instance, surged 54% in the last two reporting periods to 35.3 million shares -- the most on record. Plus, 10 out of 28 analysts maintain a "hold" or worse rating, while the average 12-month price target of $41.47 represents a slim 6% premium to its current perch.

As Paypal Holdings Inc (NASDAQ:PYPL) continues to bounce from the now-reliable $38 region and resume its longer-term uptrend -- the shares are up 28% from their Jan. 20 year-to-date low of $30.52 -- the door is wide open for shorts and analysts to change their tune. Going forward, a capitulation from these bearish bettors and/or a round of bullish brokerage notes could help fuel the stock's fire.

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