Thursday, February 10, 2011

EBAY - Stock Up, Vol Up, Calls Trade on Strong Expectations

EBAY is trading $34.02, up 6.5% with IV30™ up 6.4%. The LIVEVOL® Pro Summary is below.


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Here's the news pushing EBAY up:
SAN FRANCISCO (MarketWatch) — Shares of eBay Inc. jumped Thursday morning to their highest level in more than three years as the company kicked off a meeting with financial analysts and communicated strong expectations for both the core marketplace and PayPal business units.
Source: MarketWatch, By Dan Gallagher

The company has traded over 93,000 contracts on total daily average option volume of just 24,972. Calls have traded nearly 60,000x, yielding a 1.7:1 ratio with puts (the average is 1:1). The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates the action: over 13,000 Feb 25 calls have traded.

The Skew Tab snap (below) illustrates the vols by strike by month.

I note the upside skew difference between the front month (red) and the back months. The call interest has pushed this vol difference.

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

We can see the stock pop today and the corresponding vol increase. Based on the vol chart, IV30™ seems fair to expensive right now.

Possible Trades to Analyze
1. Trade the upside skew calendar:
a. Sell the Feb 36 call @ $0.18 (~39 vol).
Buy the Mar 36 call for $0.54 (~30 vol).
Pay $0.36 to own Mar vs Feb upside.

b. Sell the Feb 37 call @ $0.10 (~42 vol).
Buy the Mar 37 call for $0.31 (~30 vol).
Pay $0.21 to own Mar vs Feb upside, but further OTM.

2. Trade the downside skew calendar:
Sell the Feb 32 put @ $0.13 (~37 vol).
Buy the Mar 32 put for $0.61 (~34 vol).
Pay $0.44 to own Mar vs Feb downside.

3. More bullish, more risky:
Sell 1 Feb 36 call @ $0.18 (~39 vol).
Buy 1 Mar 34 call for $1.33 (~31 vol).
Sell 1 Mar 37 call @ $0.30 (~28 vol).
Pay $0.85 with upside risk in Feb. If EBAY moves up, but stays below $36 by Feb expo., this ends up as a $3 call spread for just $0.85.
N.B.: This is naked upside risk.

This is trade analysis, not a recommendation.

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