Betting on a skyrocketing tech stock ahead of earnings

Despite falling on Monday, PayPal is still hovering near all-time highs, and one trader is betting that the stock will continue to perform well after reporting earnings.

The online payments company is set to unveil results on Thursday, and Todd Gordon of TradingAnalysis.com says the charts have looked strong for PayPal going into the event. The trader points to a "ripping uptrend" that has been in place for all of 2017 and finds a "parallel channel" in the chart as well.

According to Gordon, there is a chance that PayPal could move into the mid-$70s, the upper line in the channel if it continues to move higher. He also doesn't see the chart moving any lower than around $67, the lower end of that channel and just slightly lower than Monday's levels.

But as PayPal is heading into earnings this week, Gordon takes note of the rising implied volatility, or the price of options, and wants to sell a put credit spread heading into the event.

"If you want to come in with a bullish outlook like we have [and combine] with the elevated implied volatility based on a very volatile event like earnings, it's best to be short options with a bullish bias," he said Monday on CNBC's "Trading Nation." "[This means] being short puts."

Gordon is selling the October monthly 68-strike puts and buying the October monthly 65-strike puts for a total credit of $1.09 per share, or $109 per spread. This means that if PayPal closes above $68 on Oct. 20 expiration, Gordon will get to keep the $109 credit he is taking in.

However, if PayPal falls on earnings instead and closes below $65 on Oct. 20 expiration, then Gordon would face a maximum loss of $191.

PayPal has surged 71 percent year to date.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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