eBay (EBAY) upside could be short-lived


eBay Inc. (NASDAQ: EBAY ) shares are hovering in the green roughly one week before its next earnings release date, but options action out of the gate on Wednesday suggests at least one investor expects the stock to experience limited upside during the rest of the year.

At 11:03 a.m. EST, 5,000 January 2011 24 calls changed hands for 73 cents per contract, or the bid price at the time of the trade, versus current open interest of 934 contracts. This options action suggests an investor was willing to cap maximum profits on this short call trade at the net credit collected and increase risk to bet on limited upside during the next six months. The investor will make a maximum profit of 73 cents per contract if EBAY shares are trading below the strike price at January 2011 options expiration, and will lose some of the premium collected if the stock is trading between $24 and the breakeven price of $24.73 when the calls expire. If EBAY shares climb more than 26% and are trading higher than the breakeven price, the investor could theoretically incur unlimited losses as the stock moves to the upside. This short call is a moderately bearish play because the investor is effectively calling for a ceiling in the stock but allows for a significant pop-up before this trade begins to lose money.

EBAY shares climbed 26 cents, or more than 1%, to $19.61 during morning trading on Wednesday, and is scheduled to announce earnings figures on July 21 after the market closes (analysts estimate earnings of 39 cents a share).

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

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