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
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
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
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.
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