Unusual Options Activity In eBay (EBAY)
Unusual Options Activity In eBay (EBAY)
As many of you know, unusual options activity can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.
This is something professional options traders pay a lot of attention to, and for good reason… Unusual options activity can “tip off” big moves in a stock, either up or down.
So let’s take a look at some ‘interesting’ activity that caught our eye this week:
eBay (EBAY) is a widely used online marketplace and auction site. The company also owns PayPal (online payments), which it plans on spinning off as a separate company. Check here for more info on the company.
EBAY is up 3% on the year so far. The current share price of $58.02 is just 3% from the 52-week high of $59.70 and 25% above the 52-week low of $46.34.
So what does unusual options activity in EBAY tell us?
EBAY has been in the news quite a bit recently as it has plans to spin off its highly successful payments division, PayPal. Nevertheless, the company missed badly in its most recent quarterly earnings release, and the share price plunged.
However, the stock held at the 200-day moving average, around $53. It then proceeded to climb sharply higher, even climbing above the point it was at before the earnings miss. At least some of the climb is being driven by billionaire Carl Icahn, who purchased close to 450,000 shares of EBAY during the 4th quarter.
Here’s the deal…
Last week, 7,500 Weekly 55.50 puts, expiring March 6th, were sold for $0.27. Keep in mind, a put option makes money when the stock goes down (prior to expiration), so selling a put benefits from an upwards or sideways move.
The option seller basically has unlimited loss potential on this trade (at least down to zero in the stock, although it’s highly unlikely). However, the trader can pull in the full $202,500 as long as EBAY remains above $55.50 by March 6th expiration. The breakeven point for the trade is $55.23.
$0.27 may not seem like a lot of premium to collect for near unlimited risk. But, done 7,500 times, we’re talking about over $200,000 gained. Plus, the trader only has to wait two weeks until these options expire.
Here’s the chart of EBAY:
As you can see from the chart, EBAY bounced sharply off the 200-day moving average and has soared above the 50-day moving average as well. The stock price is very near to setting new 52-week highs.
The put seller likely picked the 55.50 strike because it’s roughly the location of the 50-day moving average. The trader believes the moving average will provide support, at least long enough for two weeks to go by without a downward breach.
More Options Trading Ideas…
Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.
We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!
Yours in Profit,
Gordon Lewis
Note: Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com. You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.
Category: Unusual Options Trading Activity
