EBay Traders Bid on New Year Rally

By David Russell, reporter at OptionMonster

NEW YORK -- eBay (EBAY) has been consolidating after a big move, and the bulls are looking for a good start to the new year.

OptionMonster's tracking programs detected purchase of about 7,000 January 50 calls for $1.67. A matching number of January 46 puts was sold at the same time for $1.09.

Owning calls locks in the price where investors can buy shares, while selling puts obligates the trader to buy stock if it falls to a certain level. Combining the two strategies produces a highly leveraged position that's similar to owning equity.

In the case of Friday's position, he or she now controls the equivalent of 700,000 shares at a cost of 58 cents, less than 2% of their actual price.

The stock rose 0.78% to $49.01. The online auction company is up 64% in the last year but has been pulling back since hitting a seven-year high one month ago.

Overall option volume in the name was more than twice the daily average, despite Friday's truncated holiday session. The bullish combination trade accounted for more than two-thirds of the total.

Russell has no positions in EBAY.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.