New Options for PayPal Present Investment Opportunities
Investors in PayPal Holdings Inc (Symbol: PYPL) have fresh options available today, expiring on May 16th. With 129 days until expiration, these newly introduced contracts provide a chance for sellers of puts or calls to earn a higher premium compared to those with shorter expirations. Stock Options Channel has analyzed the PYPL options chain to spot two noteworthy contracts.
Insights on Put Contracts
The put contract at the $85.00 strike price currently has a bid of $3.95. If an investor sells this put contract, they commit to buying the stock at $85.00 while collecting the premium, which effectively reduces their cost basis to $81.05 (excluding broker commissions). For someone interested in purchasing shares of PYPL, this option may be a more attractive alternative to the current market price of $88.41 per share.
The $85.00 strike price represents approximately a 4% discount from the current trading price, meaning it is out-of-the-money by that percentage. Current data suggests a 65% chance that the put contract might expire worthless. Stock Options Channel will monitor these odds over time and provide updates on their website. If the contract does expire worthless, the premium would translate to a 4.65% return on cash commitment, or an annualized rate of 13.15%, which Stock Options Channel terms as the YieldBoost.
Below is a chart showing the trailing twelve-month trading history of PayPal Holdings Inc, with the $85.00 strike highlighted in green:
Evaluating Call Contracts
On the call side, the contract at the $95.00 strike price has a current bid of $6.00. An investor who purchases PYPL stock at $88.41 per share and sells this call contract as a “covered call” commits to selling the stock at $95.00. Including the premium collected, this strategy could yield a total return of 14.24% if the stock is called away at the May 16th expiration (before commissions). However, if PYPL shares dramatically rise, significant potential gains might be missed, underscoring the importance of examining the stock’s historical trading data and fundamentals. Below is a chart showing PYPL’s trading history with the $95.00 strike highlighted in red:
The $95.00 strike price represents about a 7% premium to the current trading price, meaning it is also out-of-the-money by this percentage. There’s a possibility that the covered call could expire worthless, allowing the investor to retain both the shares and the premium. The odds of this happening currently stand at 54%. Stock Options Channel will continue to update these odds on their website, along with the option contract’s trading history. Should the covered call expire worthless, the premium would yield a 6.79% additional return, or an annualized 19.21%, another figure noted as YieldBoost.
The implied volatility for the put contract is at 37%, while the call contract shows 40%. Meanwhile, our calculation for the actual trailing twelve-month volatility, considering the last 251 trading day closing values and today’s price of $88.41, is 34%. For more ideas on put and call options worth considering, visit StockOptionsChannel.com.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
