Traders bidding on eBay breakout

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Activist investor Carl Icahn has been jawboning eBay higher, and traders think a breakout is coming.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 30,000 March 62.50 calls for $0.32 and the sale of an equal number of March 65 calls for $0.11. Volume was more than 5 times open interest at both strikes, indicating that new positions were initiated.

Known as a bullish call spread , the trade will inflate to $2.50 if the online-auction giant closes at $65 or higher on expiration. Based on its $0.21 entry cost, that would be profit of almost 1,100 percent from the shares moving less than 10 percent. (See our Education section for more on the leveraging potetnial of options.)

EBAY is up 2.11 percent to $58.55 in afternoon trading, back near the same level where it peaked in late 2004. The company's core business has been lackluster, but Icahn has been pushing for a spinoff of its fast-growing PayPal subsidiary. He's intensified his efforts this week by alleging conflicts of interest on the board.

Investors may expect a situation similar to that of Yahoo, which doubled in value between late 2012 and early this year on plans to monetize its investment in Chinese e-commerce company Alibaba despite weakness in its core business. Chart watchers are probably eying the old highs around $60 and expecting a continued run if it's broken.

Total option volume in EBAY is more than 7 times greater than average in the session, according to the Heat Seeker. Overall calls outnumber puts by almost 9 to 1.



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.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


This article appears in: Investing , Options

Referenced Stocks: EBAY

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