Another tough day for most traders but, as always, tough days also present opportunities.
Today's no-brainer appear to be #FXI, which was on one of the posts last week so I thought I'd highlight another stock that I believe has reached bottom after a huge fall in recent weeks: #PYPL
After the stock fell from $176 to $128 (over 27% drop) I decided to sell the $120 put, which was more than 1SD OTM (out of the money). At that time it seemed like an easy money but I was wrong. It continued sliding to nearly $101 today. That's an insane, over 42% drop in 23 days.
But hold on!
If the 42% drop in February is not telling us the full picture. On July 26 last year the stock went over $310 so a $360bn company lost about 2/3 of it's value in a matter of 7 months.
The current stock price represent an P/E ratio of 29.5, which is not bad for a growth stock considering that growth stocks generally trade much higher.
So taking the above into consideration as well as the fact that the price is near a very strong support line (see the weekly chart below) and the IV Rank is very high, I believe that this stock is ripe for a bounce back.
What would I sell?
I would sell the March $85 put, which is another 17% below the current price level.
Expiry: 18 Mar
IV Rank: 64.8
Cap Req: $855
Annualised Prof: 174%
It's also worth noting that the expiry is only 24 days away so if this trade doesn't work out by the end of this week then we will roll it to April.
Let's see how this would work out.
Only 2 days in the position and we would have walked away with $0.48 profit. Not bad for an annualised gain of 1024%.