Shares of payment processing firm PayPal (PYPL) shed nearly a quarter of their value on Wednesday after the company missed earnings by a penny and lowered on guidance. However, one trader sees shares as immediately oversold in the short term.
That’s based on the February 18 $140 calls. With 14 days until expiration, 9,173 contracts traded against a prior open interest of 156, for a 59-fold jump in volume. The buyer of the calls paid $3.60.
Shares were knocked down to about $133 on Wednesday, so a run to $140 represents about a 5 percent move higher in shares. That’s easily achievable for the company in the short run, given the extent of its post-earnings dive.
Action to take: Following its recent drop, shares dropped to under 30 times forward earnings, a massive value for how the company has traded over the past two years. And sporting a 20 percent profit margin, there’s room for the company to improve operations and see shares soar from here. Investors could likely nab a solid return from a rebound in shares in the coming weeks and months.
For traders, these short-term options could yield mid double-digit gains. That’s a good return on a low-priced option, especially one with just two weeks left on the clock.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.