Call Options Or Put Options On eBay (EBAY)?
eBay (EBAY) is the hot topic in the financial media this week. The popular online marketplace is spinning off its PayPal division.
EBAY shares are currently trading at $55.72, up 7% over the last week. The stock is trading just 7% below the 52-week high of $59.70 and is 16% above the 52-week low of $48.06.
Is this an opportunity to buy call options on EBAY because the spinoff of PayPal is going to unlock value? Or should you buy put options on EBAY because the spinoff could hurt profits?
The bulls make a convincing argument…
Billionaire Carl Icahn has been pushing for EBAY to spinoff off PayPal for some time. It could end up being a better deal for both entities.
Focusing on EBAY itself, after the spinoff, the company could use its cash flow to develop the marketplace business further. Management could also look into acquisitions or return money to shareholders.
Basically, the deal could free up a lot of cash which eBay previously didn’t have access to. And that could be a very good thing moving forward.
But the bears have a compelling case as well…
On the other hand, PayPal was a big reason EBAY had the valuation it did. PayPal adds to the bottom line quite a bit.
It’s possible that the spinoff could help PayPal thrive and leave eBay in the dust. There could be a hit to cash flow, profits, margins, etc. if eBay can’t find alternate ways to make up for the lost PayPal business.
Finally, several analysts are downgrading EBAY after the news. They seem to be concerned about the company’s valuation post-spinoff as well.
So is it time to be bullish on EBAY due to the upcoming spinoff, or should you take a bearish position because of the potential hit to its valuation?
If you think the bulls are right, take a look at buying the EBAY December 57.50 calls for around $2.00.
If you think the bears are right, take a look at buying the EBAY December 55 puts for around $2.25.
Yours in Profit,
Gordon Lewis
Category: Call Or Put Options?
