PayPal just entered a correction, but one trader bets the stock could see a huge year-end rally

PayPal investors are checking out.

A sell-off on Tuesday sent the stock spiraling into a correction, having fallen more than 10 percent from its 52-week highs.

Todd Gordon, founder of, says the stock's resilience has him betting on a breakout.

"The stock has hung in extremely well in this period of volatility," Gordon said on CNBC's "Trading Nation" on Tuesday.

So far this year, PayPal has risen 14 percent, far better than the 1 percent advance on the S&P 500.

While the stock has come under pressure recently, it has managed to hold key support levels on the way to breaking through resistance, says Gordon.

"We've held the 50-week moving average. You can see that has been key support on several occasions, and it looks like this time is no different and we should be able to go up and retest these old highs," he said.

"We just did a nice double bottom here into the $76 level, and the stock has just come springing back into the $88 level," a price it has tested three times, he said. "Usually when a stock tests a level on the third or fourth time, usually there's enough conviction in the direction of that trend, which is up, to punch it through."

PayPal moved above $88 earlier this week but then moved back below $85 during Tuesday's sell-off. It is a 4.5 percent rally away from securing $88 again.

"What we're looking to do here is take advantage of just a short-term $4 move here in PayPal. From $88 I like to get up towards about $92, just to retest those old highs," he said.

Gordon is buying the $88 call and selling the $92 call with a Jan. 4 expiration. That $4 spread costs roughly $1.70. In this trade structure he is targeting a move up to that $92 level, roughly 9 percent higher from where it closed on Tuesday.


Trades to Watch

Trader Bios


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.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more