eBay (EBAY) synthetic long stock trade alert

By
A A A

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) strategy.

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.



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



This article appears in: Investing , Options

Referenced Stocks: EBAY

Karla Yeh

Karla Yeh

More from Karla Yeh:

Related Videos

How to Save Money at Bars
How to Save Money at Bars           

Stocks

Referenced

Most Active by Volume

44,823,339
  • $75.19 ▲ 0.28%
43,744,171
  • $3.44 ▼ 0.29%
42,340,022
  • $97.671 ▲ 0.66%
34,178,145
  • $17.62 ▼ 1.23%
34,028,998
  • $15.59 ▼ 0.19%
32,055,708
  • $21.23 ▼ 2.41%
31,539,235
  • $3.76 ▲ 0.80%
30,434,619
    $34.25 unch
As of 7/25/2014, 04:03 PM