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eBay Inc Block Trader Bets Against All-Time Highs
Friday was a busy day for
). Before the market opened, the stock suffered a price-target cut
to $59 from $63 at SunTrust. Then, late in the afternoon, the
ecommerce site announced the
acquisition of Decide.com
, a predictive-analytics startup that assists customers with timing
their purchasing decisions. In the options pits, eBay saw double
its normal call volume, with roughly 27,000 contracts changing
hands. However, not all of it was of the bullish, buy-to-open
variety. In fact, the day's largest transactions were a pair of
1,000-contract blocks traded at the November 60 call, at the
price of $0.46, suggesting they were sold. Open interest rose over
the weekend, too, meaning the calls were likely written to open.
Since the trades occurred at the same time, it's likely that a single, neutral-to-bearish trader was responsible for both. In so doing, the EBAY call seller pocketed a premium of $0.46 per contract, which he or she will retain if the shares remain below the strike price through November options expiration. If, however, the shares rise past that level, the trader may be forced to deliver the shares at $60 each, no matter how high they rally.
Historically speaking, the equity has never traded above $60; its all-time high is $59.21, notched all the way back in December 2004. So far this year, the stock has advanced just over 4% to trade at $52.86. Therefore, it's possible last Friday's block trader is a stockholder who's looking to generate income on a sluggish investment, and who's willing to part with the shares should they make the 13.5% advance to the strike.
This article by Alex Eppstein was originally published on Schaeffer's Investment Research .
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