Moderately bullish eBay (EBAY) trade boosts put volume


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Shares of eBay Inc. (NASDAQ: EBAY ) are in the green following news that Skype filed filed an initial public offering (IPO) proposal to the Securities and Exchange Commission on Monday morning. The online auction house saw heavy put volume on the tape out of the gate thanks to an investor who appears to have expressed moderate bullishness.

At 9:57 a.m. EDT, a block of 10,000 EBAY September 19 puts changed hands for 15 cents per contract. This price was right at the bid when the block crossed the tape. Current open interest in this line is 2,000 contracts. It looks like the investor sold these puts to open on a bet that EBAY shares will be trading higher than $19 at September options expiration in roughly one month.

Keep in mind this strategy is moderately bullish because it allows for a potential 13% decline in the stock before investors start to lose money. If the stock is trading lower than the strike price at expiration, the investor will incur losses and could continue to do so as the stock drops lower. If EBAY shares are trading at zero at expiration, this short put trade could lose a maximum of $18.85. On the other hand, the investor could make a maximum of $150,000 (the entire credit collected) if EBAY shares are trading higher than the breakeven level at expiration.

This moderately bullish trade breaks even if the stock is trading at $18.85. The investor gives back some of the premium collected if the stock is trading between the strike price $(19) and the breakeven level ($18.85) at expiration.

A closer look at time and sales shows this EBAY investor tied a stock position to this short put trade. Around the same time as the options action, more than 100,000 shares traded for $22.08 per share. It looks like the investor put on a delta-neutral position to bet on volatility instead of just direction.

EBAY shares popped up more than 2% during morning trading following news that Skype filed its IPO proposal. The stock climbed 44 cents to $21.89 as of 10:41 a.m. EDT. EBAY is trading roughly 13% higher than its six-month low of $19.70.

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

This article appears in: Investing , Options

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Karla Yeh

Karla Yeh

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