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.