Two days ago we previewed Paypal’s (PYPL) analyst day and detailed a mildly bullish call calendar for those looking to sell the expected move into the event itself to finance a more aggressively bullish view after. Here was the trade idea, from May 23rd:
Buy the May25th/July 82.5 call calendar for 2.00
– Sell 1 May 25th 82.50 call at 40 cents
– buy 1 July 82.50 call for 2.40
PYPL stock reacted pretty positively and went up in line with the expected move for the week. It has pulled back a bit today and with the May 25th calls expiring today let’s check in on the best way to manage this trade. With the stock now 81.23 the call calendar is worth about 2.50.
Because the stock is now so close to the strike, I like the idea of rolling this short call expiring today and creating a diagonal call calendar with a sale a bit higher in June. Right now the June 85 calls are bid just over 0.50 which would result in a new position of a June 85 / July 82.50 call calendar for 1.50. That allows the position to breathe if the stock goes higher over the next 3 weeks and there is no risk if the stock goes through the 85 strike as the position would still be profitable. This roll reduces overall risk to just 1.50:
Update – Buy to close (or allow to expire today which would save about .05) the May 25th calls and sell to open the June 85 calls (roll costs .50)
New position – Long the June 85/ July 82.5 Call calendar for 1.50 (currently worth 2.00)