Did eBay Inc. (EBAY) Option Bears Make Bad Bets?

eBay Inc (EBAY) saw increased put activity ahead of earnings


Published on Jan 22, 2015 at 9:07 AM
Updated on Apr 20, 2015 at 5:32 PM

Last night, eBay Inc (NASDAQ:EBAY) released its fourth-quarter numbers, and unveiled plans to spin off its PayPal division and either sell or split from its Enterprise unit. The company also announced plans to cut 2,400 jobs. In response, the security is up 3% in electronic trading, after closing yesterday at $53.38.

EBAY's pre-market move is likely to the dismay of recent options speculators, as puts traded at 10 times their normal daily pace yesterday. Digging deeper, the weekly 1/30 52-strike put was most popular by far, with nearly 23,000 contracts changing hands. It appears most activity was of the buy-to-open variety, a theory confirmed by data from the International Securities Exchange (ISE).

These bearish traders are hoping for EBAY to move south of breakeven at $51.15 (strike less the volume-weighted average price of $0.85) by next Friday's close, when the weekly series expires. Gains will accumulate below here, while losses are limited to the initial premium paid, should EBAY settle north of the strike at expiration.

From a broader perspective, eBay Inc (NASDAQ:EBAY) has been a technical laggard, dropping nearly 2% year-over-year. With today's anticipated pop, though, the equity could take out both its 10-day and 20-day moving averages for just the second time in 2015.

Daily Chart of EBAY Since December 2014

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