Options action in Internet auction house
eBay Inc. (NASDAQ: EBAY )
during midday trading suggests an investor sold a hefty number of
later-dated calls to protect against a potential slide in the
stock.
EBAY shares are currently down seven cents to $26.98 without any
news to catalyze the slight drop so far on the day. The company
reached a 52-week high of $28.37 on March 25, but the stock has
since sold off roughly 5%. EBAY is due to announce earnings on
April 21 after the market closes, and analysts estimate earnings of
41 cents a share. Judging from the call volume that crossed the
tape a few hours ago, one investor could be betting that EBAY
shares will not climb much higher during the next three months.
At 10:51 a.m. EST, 7,000 out-of-the-money (
OTM
) July 29 calls changed hands for the bid price of 93 cents per
contract, indicating investors likely sold these options on a bet
that EBAY stock could stay below $29.93 (the breakeven price) prior
to July options expiration. These calls are home to current open
interest of 1,100 contracts, which means investors traded the
majority of the options to open. Investors could make a maximum
profit of 93 cents on this short call position if EBAY shares hit a
ceiling at the breakeven price. This strategy accounts for a
potential 10% rally in the stock before investors begin to lose
money (maximum losses are theoretically unlimited if EBAY shares
climb significantly). While this options action suggests investors
are bearish on EBAY, a close look at time and sales suggests
investors sold the calls to finance a stock purchase. This means
the investor is long EBAY, but protected the long stock position by
selling upside calls. Implied volatility of the July 29 calls is
31% compared to the stock's 30-day historical volatility of
23%.
You can easily build a profit/loss graph of this short call
position coupled with long stock by opening a free
virtual trading account
.By doing so, you gain access to several tools essential to stock
and option trading that I use every day.
Options action in Internet auction house eBay Inc. (
EBAY
) during midday trading suggests an investor sold a hefty number of
later-dated calls to protect against a potential slide in the
stock.
EBAY shares are currently down seven cents to $26.98 without any
news to catalyze the slight drop so far on the day. The company
reached a 52-week high of $28.37 on March 25, but the stock has
since sold off roughly 5%. EBAY is due to announce earnings on
April 21 after the market closes, and analysts estimate earnings of
41 cents a share. Judging from the call volume that crossed the
tape a few hours ago, one investor could be betting that EBAY
shares will not climb much higher during the next three months.
At 10:51 a.m. EST, 7,000 out-of-the-money (
OTM
) July 29 calls changed hands for the bid price of 93 cents per
contract, indicating investors likely sold these options on a bet
that EBAY stock could stay below $29.93 (the breakeven price) prior
to July options expiration. These calls are home to current open
interest of 1,100 contracts, which means investors traded majority
of the options to open. Investors could make a maximum profit of 93
cents on this short call position if EBAY shares hit a ceiling at
the breakeven price. This strategy accounts for a potential 10%
rally in the stock before investors begin to lose money (maximum
losses are theoretically unlimited if EBAY shares climb
significantly). While this options action suggests investors are
bearish on EBAY, a close look at time and sales suggests investors
sold the calls to finance a stock purchase. This means the investor
is long EBAY, but protected the long stock position by selling
upside calls. Implied volatility of the July 29 calls is 31%
compared to the stock's 30-day historical volatility of 23%.
You can easily build a profit/loss graph of this short call
position coupled with long stock by opening a free
virtual trading account
.By doing so, you gain access to several tools essential to stock
and option trading that I use everyday.