Visa, Mastercard and Paypal have all experienced nice pullbacks.
I own all of these companies currently but I like to get “overweight” great companies on nice pullbacks (with call options in order to mitigate risk).
Let’s look at the dips…
The above 6 month chart shows the dips of these companies versus the SPY (if you don’t know why the SPY is so important then do yourself a favor and take “Stock Market Investing Made Incredibly Easy” parts I &II).
I bought call options on PYPL and MA last week….
I like to buy call options with a little intrinsic value in order to save on the cost of time-value (if you don’t follow that then take action and take my “Options Made Incredibly Easy” course).
Here is my super duper simplistic thesis…
- Dominant companies tend to rebound on pullbacks (especially in this market.)
- The fintech sector, in theory, should benefit from the inflation to a certain degree because the higher cost of goods is making the transaction costs higher as people spend their money.
- With the holidays approaching more transactions should be on the horizon
- MOST importantly I believe these companies are here to stay for the long-term and will continue to be needed by consumers around the world.
What can happen from here with these trades?
Scenario one–> The stocks can trade tight up until March (the expiration date for both) in which case I will lose the cost of time-value. This is rather unlikely and not the worst thing ever.
Scenario two–> The market could tank or the stocks could continue to dive and the share price of PYPL and MA continue to decline in which case I could lose about $7,000. If this happens I will happily buy even more options contracts on both companies. I always like to have a share price in mind that I will buy more shares and more call options on these companies. I will do another layer of buying if MA gets to low 300s. If PYPL dives to around 205 I will do the same.
Scenario three–> These stocks rebound in a few weeks and I will sell the options when they are up around the 70-120% range.
I will keep you posted…
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