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Calls were the options of choice among eBay Inc (NASDAQ:EBAY) traders on Christmas Eve, with roughly 118,000 of the bullishly skewed bets crossing the tape, compared to just 8,910 puts. In fact, call volume by the 1:00 p.m. ET close was more than double what is typically seen by that time of the trading day.
A pair of strikes garnered notable attention, as well, thanks to a large two-legged transaction. Specifically, a block of 12,200 January 2014 55-strike calls changed hands below the bid price, while a matching lot of weekly 1/24 56-strike calls simultaneously traded near the ask price. Implied volatility dipped at the lower strike and rose at the higher, suggesting they were sold to close and bought to open, respectively, in what amounts to a roll up and out strategy -- a theory confirmed by Trade-Alert.
By enacting this tactic, Tuesday's big trader expects EBAY to continue moving up the charts, beyond $56 by the closing bell on Friday, Jan. 24, when the weekly options expire. His original bet anticipated a move above $55, but the speculator has set his sights higher, while paying premium to give the shares an extra week to make the necessary rally. With the stock down 1.7% today to $54.22, this individual is banking on at least a 3.3% gain from eBay Inc during the next four-plus weeks. If the equity remains below the weekly strike through expiration, however, the most the trader will lose is the initial premium paid.
Two days before the weekly EBAY options expire -- namely, after the close on Wednesday, Jan. 22 -- the online marketplace will report fourth-quarter earnings. Historically, the security has, for the most part, topped its average per-share profit estimates and gained in the ensuing days and weeks. However, following the company's last three trips to the earnings confessional -- despite beating the consensus view twice and matching it once -- the shares have averaged a 5.5% single-day loss.
Meanwhile, on the charts, eBay Inc (NASDAQ:EBAY) has advanced less than 7% year-to-date -- well short of the S&P 500 Index's (SPX) nearly 30% jump in 2013. Still, the Internet marketplace has attracted plenty of bullish attention from the brokerage bunch, with 24 ratings of "buy" or better, compared to just five "holds" and not a single "sell" or worse recommendation. Going forward, continued technical struggles could force the bulls to change their tune on EBAY, pressuring the shares lower.