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eBay Inc Block Trader Bets Against All-Time Highs

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EBAY sees out-of-the-money call selling activity in the November series.

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Friday was a busy day for eBay Inc (NASDAQ:EBAY). Before the market opened, the stock suffered a price-target cut to $59 from $63 at SunTrust. Then, late in the afternoon, the ecommerce site announced the acquisition of Decide.com, a predictive-analytics startup that assists customers with timing their purchasing decisions. In the options pits, eBay saw double its normal call volume, with roughly 27,000 contracts changing hands. However, not all of it was of the bullish, buy-to-open variety. In fact, the day's largest transactions were a pair of 1,000-contract blocks traded at the November 60 call, at the bid price of $0.46, suggesting they were sold. Open interest rose over the weekend, too, meaning the calls were likely written to open.

Since the trades occurred at the same time, it's likely that a single, neutral-to-bearish trader was responsible for both. In so doing, the EBAY call seller pocketed a premium of $0.46 per contract, which he or she will retain if the shares remain below the strike price through November options expiration. If, however, the shares rise past that level, the trader may be forced to deliver the shares at $60 each, no matter how high they rally.

Historically speaking, the equity has never traded above $60; its all-time high is $59.21, notched all the way back in December 2004. So far this year, the stock has advanced just over 4% to trade at $52.86. Therefore, it's possible last Friday's block trader is a stockholder who's looking to generate income on a sluggish investment, and who's willing to part with the shares should they make the 13.5% advance to the strike.

This article by Alex Eppstein was originally published on Schaeffer's Investment Research.

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No positions in stocks mentioned.
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