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eBay Inc (EBAY) Drama Draws Option Bulls

eBay Inc speculators are purchasing soon-to-expire call options

by 2/24/2014 3:01 PM
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Option Brief: eBay Inc (NASDAQ:EBAY) is up 3.1% at $56.28, as the company's conflict with activist investor Carl Icahn heats up. Specifically, EBAY accused Icahn -- who has been campaigning for a PayPal spinoff and just disclosed a 2.15% stake in EBAY -- of "mudslinging," after he called on two long-time board members to resign. Against this backdrop, option bulls are coming out of the woodwork, with roughly 47,000 calls exchanged -- a 66% mark-up to the stock's average intraday volume, and more than double the number of EBAY puts traded.

Garnering notable attention has been the weekly 2/28 56.50-strike call, where more than 3,400 contracts have crossed, primarily on the ask side. Implied volatility is 5 percentage points higher, and volume has outstripped open interest at the strike, hinting at a fresh batch of bullish bets.

The goal of the call buyers is for EBAY to extend today's uptrend and travel north of $56.50 through the remainder of the week, which represents the contracts' lifespan. Delta for the calls has jumped to 0.47 from 0.13 at Friday's close, implying a roughly 47% chance of the contracts landing in the money at expiration.

Risk, meanwhile, is limited to the initial premium paid for the calls, should eBay Inc (NASDAQ:EBAY) stay beneath the strike through Friday's close. What's more, the security's Schaeffer's Volatility Index (SVI) of 20% sits just 2 percentage points from an annual nadir, suggesting EBAY's short-term options are trading at a bargain-basement price, relatively speaking.


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