Paycom Software [PAYC]
Spot $170.67 (2026-07-29 10:48 ET). Chain and quotes pulled live from Alpaca on 2026-07-29.
This document constructs vehicles and states what can actually be filled. It issues no position verdict — the memo scores Criteria; the book decides whether to own anything.
| Measure | Value |
|---|---|
| 20-day average daily volume | 768,575 shares |
| 20-day ADV in dollars | $131.2m/day |
| Realised volatility (daily, annualised, since 2024-01-01) | 39.2% |
| Beta vs SPY (644 daily obs) | 0.78 |
| Shares outstanding | 47,631,450 (2026-04-28 cover page) |
| Float | effectively all of it; single share class, NYSE-listed |
Liquidity Criteria (equity): PASS.
At $131m/day a $20m position is ~15% of one day's volume and clears in a day or two at 10–20% participation. Size is not a constraint on this name.
Per the Criteria ("any proposed options structure requires the actual chain pulled first — open interest and quoted size for the specific strikes and expiry"), the full listed chain was retrieved before any structure was proposed. 53 call contracts exist across Dec-2026 / Jan-2027 / Feb-2027 between $140 and $260 strikes.
Open interest across the entire chain:
| Expiry | Contracts listed ($140–$260) | With OI > 0 | Max OI at any strike |
|---|---|---|---|
| 2026-12-18 | 19 | 19 | 74 (K=175) |
| 2027-01-15 | 19 | 19 | 260 (K=155) |
| 2027-02-19 | 15 | 6 | 14 (K=200) |
This is a thin chain. The single deepest strike in the entire listed universe holds 260 contracts. Feb-2027 is effectively unlisted in practice — 9 of 15 strikes have zero open interest. Jan-2027 is the only expiry worth using.
| Value | |
|---|---|
| Jan-2027 implied volatility, at-the-money (K=170–175) | 50.7–50.9% |
| Realised volatility (daily, annualised, since 2024-01-01) | 39.2% |
| Vol premium | ≈ +11.5 vol points |
Buying outright premium here is paying an 11.5-point vol premium into a name that has already risen 22.5% in five sessions. That is the wrong side of both carry and entry. Any options expression must be a spread (short a wing) or nothing.
Jan-2027 $175 / $230 call spread — live quotes, 2026-07-29:
| Leg | Symbol | Strike | Bid | Ask | Bid size | Ask size | OI | IV | Delta |
|---|---|---|---|---|---|---|---|---|---|
| Buy | PAYC270115C00175000 |
175 | 21.56 | 24.22 | 109 | 54 | 41 | 0.507 | 0.560 |
| Sell | PAYC270115C00230000 |
230 | 5.99 | 8.56 | 30 | 12 | 100 | 0.490 | 0.250 |
| Net debit (pay the ask, hit the bid — no mid-market assumption) | $18.23 |
| Maximum value at expiry | $55.00 |
| Max payoff ratio | 3.02 : 1 |
| Breakeven at expiry | $193.23 (+13.2% from spot) |
| Net delta | +0.31 per spread |
| Days to expiry | 170 |
| Fillable size (binding constraint: 30 contracts quoted on the $230 bid) | ≈ 30 spreads |
| Premium at 30 spreads | ≈ $54,700 |
Liquidity Criteria (options): CONSTRAINED — the chain supports a token overlay only.
Thirty spreads is ~$55k of premium on a book that would size an equity position in the millions. This is not a vehicle for the position; it is at most a small convexity kicker. The HCA precedent in the Criteria is exactly this failure mode, and the number is reported rather than assumed away.
Explicitly rejected structures and why: - Long outright Jan-27 $175 calls ($24.22, 50.7% IV vs 39.2% realised) — pays the full 11.5-point vol premium; 170 days of theta into a name whose thesis resolves over quarters, not weeks. - Anything in Feb-2027 — 9 of 15 strikes carry zero open interest. - Anything in Dec-2026 — 51 days shorter than Jan-27 with a third of the open interest, and it expires before the FY2027 guide.
The vehicle is common equity. $131m/day ADV, no borrow question on a long, no chain constraint, no vol premium paid. The listed options market on PAYC is too thin to carry the expression and rich enough that buying it costs 11.5 vol points.
| Input | Value | Note |
|---|---|---|
| Realised volatility | 39.2% | Inverse-vol sizing is the framework's active downside control (Downside Criteria is MEASURED, not BINDING, and the interim protection is inverse-vol sizing). At 39.2% vol PAYC sizes down roughly 2.5x versus a 16%-vol name. |
| Beta | 0.78 | |
| Bear case | −53.3% ($79.75) | named cause in PAYC_Valuation.md §5 |
| 12-month target | +25.0% ($213) | |
| Reward : risk at the stated cases | 25.0 / 53.3 = 0.47 : 1 | Unfavourable on the point estimates. Recorded, not buried. The bear is a 5-year terminal-value case and the target is a 12-month multiple case, so they are not directly commensurable — but a book sizing on this pair should know the ratio. |
| Sub-sector for concentration | HCIT | |
| Correlated names | PCTY (near-identical business), ADP, PAYX | A PAYC and a PCTY position are close to the same position: over the last five sessions they moved +22.5% and +21.1%. Treat as one exposure for concentration purposes. |
Momentum Criteria is MEASURED and governs when, never whether.
| 12-1 momentum | −46.4% (2025-07-29 → 2026-06-29) |
| Cross-sectional percentile | INDETERMINATE — no universe momentum distribution was computed in this run. Reported raw rather than converted into an absolute rule, per the Criteria. |
| Last five sessions | +22.5% ($139.30 → $170.67), sector-wide, cause undocumented |
| 12-month total return | −28.1% |
Entry note. Deeply negative 12-1 momentum against a violent, unexplained five-day reversal is the worst possible timing signal to act on: it is either the start of a genuine trend change or a squeeze into an unknown catalyst. Q2 FY2026 results (expected the first week of August 2026) resolve the question at low cost — one week of waiting. Any entry ahead of that print is a bet on an event whose content is unknown and whose price has already moved 22.5%.
Named invalidations — each is falsifiable and dated:
| Invalidation | Threshold | Where it shows up |
|---|---|---|
| Recurring growth deceleration accelerates | ex-float recurring & other growth below 7.5% in any quarter | quarterly 10-Q revenue disaggregation |
| Annual revenue retention rate falls | below 90% | annual 10-K disclosure only |
| Operating margin breaks the four-year band | GAAP operating margin below 26% on a TTM basis, ex one-offs | quarterly |
| Buyback funded into rising leverage | revolver drawn above $1.5bn, or consolidated leverage approaching the 3.0x Restricted-Payments test | quarterly balance sheet / debt note |
| Deferred contract cost life shortened | any change to the 10-year estimated client life used to amortise the $1,036.9m of capitalised contract costs | accounting policies note |
| The 2023 event repeats | management attributes a revenue shortfall to its own automation (IWant) | earnings call |