Leading up to Paypal’s late May analyst day we previewed the event itself and detailed a mildly bullish call calendar. Here was the original 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
At the time the stock was 80.45, but in just two days it was to the 82.50 level, which was the expected move for the event and the level we targeted. At that point we updated with a roll to the short strike portion of the calendar, allowing the stock to go even higher without the position becoming short delta. We kept the roll higher, but within the same June expiration as the initial call sale. We also were able to reduce overall risk by .50. Here was that update, from May 25th:
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)
That turned out to be the right roll as the stock has continued higher in the weeks since and is now at the 85 level. With the stock now 85.20, this trade is worth about 3.50, versus the 1.50 currently at risk, and the 2.00 originally at risk.
That’s a pretty nice winner and those that are good with that can simply close the trade and take the profits. For those looking to stay in the position for more potential gains there’s no great roll right now that books the current profits, but there is a roll that greatly reduces the current risk and allows for more upside. Right now the June 85 calls can be bught to close for about 1.30. The July 87.5 calls are bid about 2.05. That means rolling from the June 85s to the July 87.5s reduces risk by about .75, leaving a July 82.5/87.5 call spread for just .75 as the cost basis. That can make up to 4.25 in total profits and has a breakeven at 83.25. It doesn’t book any profits so this is only for those that want to continue the bullish position into July.
For those happy with current profits it’s probably a good time to take those as any movement higher in the stock runs the risk of the losing some of the current profits.