EBAY does own PayPal, an acquisition that has paid off in excellent fashion for EBAY! EBAY basically has zero debt as its cash on hand exceeds its total debt by over $1.5 billion. Thus management can be understood as prudent, and somewhat conservative.
Technically, I will leave EBAY to T3 to discuss, with the only addendum to their excellent analysis is that I have EBAY coiled. Thus, I am expecting a higher volatility in the stock over the next several weeks.
Fundamentally, I have EBAY only growing at a 10% annual rate of return in this current quarter. Trading at 20X P/E, that 10% growth makes the stock quite rich as this time. However this current quarter also ends its fiscal year which should show growth year- over-year over 15%. Should that become fact, that tempers the big differential between the P/E ratio and the actual rate of growth for EBAY.
Let's review the T3/OP video with Jill and Scott before we get into the trade:
The trade set up I prefer for EBAY at this time is the bullish call vertical spread as it controls risk 100%. In addition, the sale of the out-of-the-money call part of this type of spread helps pay for the decay on the long call side of the spread.
This trade does have medium reward potential, though the gain potential is capped due to that same short call involved.
Consider a bullish vertical call on EBAY that expires in January.
Trades: Buy to open 3 EBAY January 28 calls for $2.50 and sell to open 3 EBAY January 33 calls at $0.50.
The total risk for the spread is the premium paid, or $2.00. Given the fact that EBAY is $0.75 in-the-money relative to this spread, the risk is nicely exceeded by the reward potential.
This content brought to you by TheStreet's OptionsProfits. CLICK HERE FOR A 14-DAY FREE TRIAL.
On Saturday, December 3, the CBOE Option Pit and OptionsProfits are hosting a full-day course dedicated to mastering strategies for trading the VIX. CLICK HERE FOR INVITE AND TO REGISTER.
OptionsProfits can be followed on Twitter at twitter.com/OptionsProfits
T3Live can be followed on Twitter at twitter.com/_t3Live_
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV