eBay Inc. (NASDAQ: EBAY )
is showing strength during morning trading on Thursday against the
broad-market losses and at least one investor appears to have taken
the opportunity to bet on near-term upside by selling puts and
buying calls in a synthetic short stock (split strikes)
At 10:45 a.m. EST,
10,000 August 17-21 synthetic long stock spreads changed
hands for a net debit of five cents per contract.
The August 17 puts traded for 50 cents per contract (below the bid
price at the time of the trade) and are home to current open
interest of 16,000 contracts, while the August 21 calls changed
hands for 55 cents per contract (one cent higher than the ask price
when the volume hit the tape) and are home to current open interest
of 699 contracts. This options action suggests the investor traded
this spread to open on a bet that EBAY will be trading at least 7%
higher than their current level at August options expiration.
Maximum gain on this synthetic long stock spread is theoretically
unlimited above the 21-strike while maximum loss is limited
to $17.05 in the unlikely event that EBAY shares are trading at
zero at expiration. If EBAY shares are still trading between the
strike prices at expiration, the investor will lose the premium
paid, or five cents per spread. This options play effectively
expresses the same sentiment of a long stock position, but selling
the puts and buying the calls allows investors to commit less
capital instead of paying the full stock price.
A look at time and sales shows the investor tied a stock
position to this bullish options play, but this article focuses
only on the synthetic long stock action.
EBAY has not announced any news since its acquisition of
RedLaser on June 23. The stock has gained four cents to $19.65 so
far on the day, and the market expects the company's earnings
announcement around July 21.