eBay Sees Call-Buying Spike
By Jud Pyle, CFA, chief investment strategist for the Options News Network
NEW YORK (
) -- At least one investor is taking a bullish stance on Internet retailer
eBay
(EBAY) - Get Report
and boosting call volume the same day RBC raised its target price to $29 from $24.
The out-of-the-money Oct. 26 calls changed hands more than 39,000 times today and were home to open interest of 1,066 contracts. These calls closed up 11 cents on the day. This computes to an implied volatility of 35.6.
The volume weighted average price of these calls was approximately 43 cents, meaning bullish investors who bought the Oct. 26 calls need EBAY shares to expire higher than $26.43 to make money. Keep in mind, of course, that the investor could choose to sell these options to take profit if the calls rise prior to expiration.
EBAY shares closed up 18 cents to $24.32 on Wednesday. The Oct. 26 calls have a delta of 29 cents, meaning for every dollar move in the underlying, these options should climb 29 cents. That means these calls
should
have moved 6 cents, but call-buying activity is pushing the prices higher.
Normal daily option volume in EBAY is approximately 22,000 contracts, and the call-buying action we've seen already trumps this figure. On Wednesday, approximately 53,000 contracts across all strikes hit the tape, more than half of which changed hands in the Oct. 26 call series.
Call-buying like this does not automatically mean investors should stock up on EBAY shares. The company's stock is currently up 53% higher from a recent low of $15.91, however, and at least one investor is looking for further upside throughout the next month.
Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."
