Options activity in eBay (EBAY) banks on continued upside


Shares of eBay Inc. (NASDAQ: EBAY ) dropped just over 1% during Monday's trading without any notable news, but options action on the tape suggests at least one investor expects the stock to turn up during the next two months and was willing to increase risk in order to boost potential returns.

EBAY dropped 24 cents to $20.71 on the day today roughly one week after the company announced it acquired a barcode scanner app for the iPhone. EBAY has not confirmed its next earnings release date, but the market expects the report around July 21.

At roughly 12:34 p.m. EST, 12,500 August 22- and 23-strike calls traded simultaneously with the same number of August 17- and 18-strike puts. In this trade was, the investor bought the calls and sold the puts.  So you can think of this as if they did two separate bullish synthetic long stock (split strikes) trades.  The investor bought the August 22 calls and 23 calls for 71 cents and 42 cents, respectively.  They then sold the 18- and 17-strike puts for 38 cents and 24 cents, respectively.  So one way to think about this options action is the investor paid 47 cents for the 17-22 synthetic long stock spread, and paid four cents for the 18-23 synthetic long stock trade. The graph below shows what the profitability of this trade would look like at expiration.  But prior to expiration, the calls could appreciate and the puts could decline if the shares were to rally.

Looking further at the time and sales of EBAY shares, we see that these options traded with stock, meaning the investor sold an amount of stock to make the trade delta neutral.  This makes it more of a volatility play, but still benefits the most if the stock rallies because they are long the upside out of the money calls.  The implied volatility of the 22 and 23 calls is 36.5% and 35.5%, respectively, while the puts have implied volatility levels of 44% and 46%, respectively.  All of these numbers compare to the three-month realized volatility of 30% for EBAY shares.

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

This article appears in: Investing , Options

Referenced Stocks: EBAY

Jud Pyle

Jud Pyle

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