eBay Inc (EBAY) Drop Keeps Call Buyers On Edge

eBay Inc (NASDAQ:EBAY) is lower, after a Morgan Stanley downgrade

Apr 19, 2016 at 10:37 AM
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Netflix, Inc. (NASDAQ:NFLX) tumbled yesterday at the hands of Amazon.com, Inc. (NASDAQ:AMZN), and today, fellow tech stock eBay Inc (NASDAQ:EBAY) is plunging -- and AMZN is to blame. Specifically, shares of EBAY have dropped 2.5% to $24.67, after Morgan Stanley downgraded the stock to "underweight" from "equal weight" and lowered its price target to $22.50 from $24, citing increased competition from Amazon Prime. Against this backdrop, put options have the edge over call options in early trading -- a sharp contrast to what's typically seen in EBAY's options pits.

By the numbers, 1,513 puts have changed hands thus far, compared to 1,458 calls -- a relatively slow start to the day for EBAY options traders. Longer term, 57,172 call options have been bought to open at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) over the past 10 trading days, versus 2,117 put options. The resultant call/put volume ratio of 27.01 sits just 1 percentage point from a 52-week peak, meaning calls have been bought to open over puts at a near-annual-high clip.

Echoing this call-skewed backdrop is EBAY's Schaeffer's put/call open interest ratio (SOIR) of 0.39, which sits lower than 98% of all comparable readings taken in the past year. In other words, short-term traders have rarely been as call-heavy toward EBAY as they are now.

Looking back over the past two weeks' worth of trading, EBAY's weekly 4/29 24-strike and June 26 calls have seen the largest increases in open interest, with 63,437 contracts added. According to the major options exchanges, some buy-to-open activity has occurred here, meaning traders expect EBAY to rally north of the strikes by the respective expiration dates -- the former of which comes right on the heels of the firm's first-quarter earnings report, due next Tuesday evening.

Technically, shares of eBay Inc (NASDAQ:EBAY) have been edging higher since hitting an annual low of $21.52 on Feb. 8, up 14.6%. However, the stock remains stuck beneath its 80-week moving average -- a trendline the security breached after EBAY's last earnings report in late January.

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