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eBay Inc (EBAY) Call Volume Soars as Traders Bet On Short-Term Advance

eBay Inc's May, June, and July option series are being targeted today

by 5/16/2014 12:59 PM
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Option Brief: Call players are visibly active today in eBay Inc's (NASDAQ:EBAY) options pits. At last check, roughly 108,000 calls are on the tape -- nine times the intraday average, and nearly five times the number of puts that have traded. What's more, nine of the 10 most active options are of the call variety, and all but one of these expire within the next two months. Amid this increased demand for short-term options, EBAY's 30-day at-the-money implied volatility (IV) has shot 14.3% higher to 22.6%.

In the May-dated series -- which expires at tonight's close -- call players are targeting the 51.50, 52, and 52.50 strikes. The majority of the 24,145 contracts collectively traded thus far have done so on the ask side, and volume outstrips open interest at each strike, pointing to buy-to-open activity. In other words, these eleventh-hour bulls expect EBAY to extend its run higher through the remainder of today's trading. At last check, the stock was enjoying a 1.9% lead to linger near $52.35.

Also receiving notable attention is a pair of calls in the June-dated series at the 55 and 57.50 strikes. A respective 8,042 and 5,792 contracts have crossed the tape at these out-of-the-money contracts, mostly at the ask price, hinting at buyer-driven activity. Plus, IV is trending higher at each strike, indicating the initiation of new positions. Delta on the lower-strike call is docked at 0.26, suggesting a roughly 1-in-4 chance of an in-the-money finish at the close on Friday, June 20, when the options expire. Delta on the higher-strike call, meanwhile, is perched at a much slimmer 0.12.

Finally, the two most active strikes heading into the latter half of today's session are EBAY's July 50 and 57.50 calls. Diving deeper, it appears one speculator in particular targeted these two strikes to initiate a long call spread. Shortly before noon, one block of 5,000 July 50 calls was bought for $3.60 each, while a symmetrical block of July 57.50 calls was sold for $0.60 apiece, resulting in a net debit of $3.00 per pair of contracts. IV rose at each leg, again suggesting the opening of new positions.

By establishing this moderately bullish spread, the speculator is ideally hoping EBAY closes right at $57.50 on Friday, July 18, when the options expire, allowing her to pocket the maximum potential reward of $4.50 per pair of contracts (the difference between the two strikes, less the net debit). However, she will still begin to profit should EBAY topple the breakeven mark of $53.00, which is the bought strike plus the net debit. Her risk, meanwhile, is limited to the initial cash outlay, or $1.5 million (5,000 contracts * $3.00 net debit * 100 shares per contract), should EBAY be trading at or below $50 at expiration.

On the fundamental front, eBay Inc (NASDAQ:EBAY) has garnered its fair share of headlines this week. For starters, both Carl Icahn and Jana Partners LLC revealed stakes in the e-commerce issue. Additionally, eBay announced it is increasing its presence in Latin America, and rumors are swirling the company could possibly be in PayPal-related talks with Google Inc (NASDAQ:GOOGL).


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