Market News

September 26, 2012  Wed 2:45 AM CT

eBay has pulled back from seven-year highs in the last week, and one trader is looking for more downside in the next month.

EBAY fell 2.6 percent to close at $48.03. The online auction giant was above $50 for much of last week, its highest levels since 2005, after trading near $28 last November.

A trader bought 5,000 October 48 puts for the ask price of $1.38 while selling 10,000 October 45 puts for the bid price of $0.43, according to optionMONSTER's Depth Charge tracking system. The volume at each strike was almost twice the previous open interest, indicating that this is a new ratio spread.

The put spread is designed to profit from a moderate decline by mid-October, generating a maximum gain if EBAY falls to $45. Below that level, the trader faces the possibility of assignment and the obligation to buy more shares. (See our Education section)
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Using puts to BUY stock

Puts are an options contract that gives buyers the right to sell their stock for a set price on or before a future date. However, puts can also be an effective way to BUY stock.

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