eBay call buyers bid on New Year rally

By David Russell,

Shutterstock photo

eBay has been has been consolidating after a big move, and the bulls are looking for a good start to the New Year.

optionMONSTER's tracking programs detected purchase of about 7,000 January 50 calls for $1.67. A matching number of January 46 puts was sold at the same time for $1.09.

Owning calls locks in the price where investors can buy shares, while selling puts obligates the trader to buy stock if it falls to a certain level. Combining the two strategies produces a highly leveraged position that's similar to owning equity.

In the case of Friday's position, he or she now controls the equivalent of 700,000 shares at a cost of $0.58--less than 2 percent of their actual price. (See our Education section)

EBAY rose 0.78 percent to $49.01. The online auction company is up 64 percent in the last year but has been pulling back since hitting a seven-year high one month ago.

Overall option volume in the name was more than twice the daily average, despite Friday's truncated holiday session. The bullish combination trade accounted for more than two-thirds of the total.

(A version of this post appeared on InsideOptions Pro on Friday.)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing Options
Referenced Stocks: EBAY

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