Paypal Holdings Inc PYPL shares are down 3.7% in the past three days after the digital payment leader announced a $4 billion buyout of Honey Science Corporation on Wednesday.
Even after the post-deal sell-off, some large option traders appear to have low expectations for PayPal over the next couple of months.
The Trades
On Friday, Benzinga Pro subscribers received five option alerts related to unusually large trades of PayPal options. Here are a handful of the biggest:
- At 10:33 a.m., a trader bought 593 PayPal put options with a $97.50 strike price expiring on Jan. 17, 2020 near the ask price at $2. The two trades represented a $118,600 bearish bet.
- Also at 10:33 a.m, a trader sold 1,327 PayPal call options with a $103 strike price expiring on Nov. 29 near the bid price at 53.2 cents. The trade represented a $70,596 bearish bet.
- At 10:34 a.m., a trader sold 1,453 PayPal call options with a $104 strike price expiring on Dec. 6 near the bid price at 71.5 cents. The trade represented a $103,889 bearish bet.
- Less than a minute later, a trader sold 673 PayPal call options with a $103 strike price expiring on Dec. 6 near the bid price at $1.03. The trade represented an $69,319 bearish bet.
- At 10:35 a.m., a trader sold 1,970 PayPal call options with a $105 strike price expiring on Nov. 29 below the bid price at 12.4 cents. The trade represented an $24,428 bearish bet.
Why It's Important
Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.
Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.
Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively small size of the largest PayPal trades based on institutional standards, they are unlikely to be institutional hedges.
Bottom Not In?
It seems the majority of the large PayPal option traders on Friday morning are betting on some more weakness following PayPal’s largest acquisition in the company’s history.
Honey Science’s most popular mobile app tool is its discount and price tracking tools, and the company has more than 17 million monthly active users.
On Thursday, Raymond James said the buyout of Honey Science “makes a great deal of sense,”but said the $4 billion price tag is “a lot to pay for a company making little to no money.”
While other analysts also praised PayPal’s strategy, Bernstein called the price “somewhat rich” at more than 10 times forward enterprise-value-to-sales.
Benzinga’s Take
The large option trades on Friday were all bearish and all took place within about three minutes, suggesting they all likely originated from the same trader. Four of the five trades were call sales, meaning the trader may be abandoning a previous bullish trade following the recent price weakness.
The one put purchase has a break-even price of $95.50, suggesting the trader sees at least 5.5% additional downside for PayPal over the next two months.
Do you agree with this take? Email feedback@benzinga.com with your thoughts.
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