PayPal enters a correction, but one trader bets the stock could rally

PayPal investors are checking out.

A sell-off on Tuesday sent the stock spiraling into a correction, having fallen more than 10 percent from its 52-week highs.

Todd Gordon, founder of TradingAnalysis.com, says the stock’s resilience has him betting on a breakout.

“The stock has hung in extremely well in this period of volatility,” Gordon said on CNBC’s “Trading Nation” on Tuesday.

So far this year, PayPal has risen 14 percent, far better than the 1 percent advance on the S&P 500.

While the stock has come under pressure recently, it has managed to hold key support levels on the way to breaking through resistance, says Gordon.

“We’ve held the 50-week moving average. You can see that has been key support on several occasions, and it looks like this time is no different and we should be able to go up and retest these old highs,” he said.

“We just did a nice double bottom here into the $76 level, and the stock has just come springing back into the $88 level,” a price it has tested three times, he said. “Usually when a stock tests a level on the third or fourth time, usually there’s enough conviction in the direction of that trend, which is up, to punch it through.”

PayPal moved above $88 earlier this week but then moved back below $85 during Tuesday’s sell-off. It is a 4.5 percent rally away from securing $88 again.

“What we’re looking to do here is take advantage of just a short-term $4 move here in PayPal. From $88 I like to get up towards about $92, just to retest those old highs,” he said.

Gordon is buying the $88 call and selling the $92 call with a Jan. 4 expiration. That $4 spread costs roughly $1.70. In this trade structure he is targeting a move up to that $92 level, roughly 9 percent higher from where it closed on Tuesday.

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