Established Covered Calls in PayPal Holdings Inc.

At 9:53am this morning, a short-term Covered Calls position was established by buying 400 shares of PayPal Holdings Inc. (ticker symbol PYPL) stock at $67.33 and simultaneously selling 4 July 14th, 2023 $65.00 Call options at $2.86 per share -- at the buy/write net debit limit order of $64.47 per share -- so the time value was $.53 per share [$2.86 Call options premium - ($67.33 stock purchase price - $65.00 strike price)].  The approximate probability that this position will be in-the-money and therefore assigned on the options expiration date is 75.0%.  Also important is the fact that the next quarterly earnings report on August 2nd, 2023 is after the July 14th options expiration date.

PayPal's FY2023 estimated P/E Ratio is 13.7 which is very attractive based on their ongoing growth potential and the discounted P/E relative to the S&P 500 and also their historical valuation.  PayPal has beat earnings estimates for each of the last 4 quarters and their projected continuing earnings growth every quarter this year is projected to exceed that of the prior year for the comparable quarter.  The forty-five Wall Street analysts that now cover PayPal agree with me that the stock is currently undervalued. Their average target price is $91.33 which is +35.6% upside from today's purchase price.    
 

As detailed below, a potential outcome for this PayPal investment is +0.8% absolute return-on-investment for the next 10 days (equivalent to +29.6% annualized-return-on-investment) if the stock closes above the $65.00 strike price on the July 14th, 2023 options expiration date.

PayPal Holdings Inc. (PYPL) -- New Covered Calls Position

The net debit buy/write limit order was executed as follows:
7/5/2023 Bought 400 shares of PayPal stock @ $67.33 per share 
7/5/2023 Sold 4 PYPL July 14th, 2023 $65.00 Call options @ $2.86 per share
Note: this was a simultaneous Buy/Write transaction and the Implied Volatility of the Calls was 31.4 when this position was established.

A possible overall performance result (including commissions) would be as follows:
Covered Calls Net Investment: $25,790.68
= ($67.33 - $2.86) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$1,141.32
= ($2.86 * 400 shares) - $2.68 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If PYPL stock is above the $65.00 strike price at the July 14th expiration): -$932.00
= ($65.00 -$67.33) * 400 shares

Potential Total Net Profit (If assigned at expiration): +$209.32
= (+$1,141.32 options income +$0.00 dividend income -$932.00 capital appreciation)

Potential Absolute Return-on-Investment: +0.8%
= +$209.32/$25,790.68
Potential Equivalent Annualized-Return-on-Investment: +29.6%
= (+$209.32/$25,790.68) * (365/10 days)