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September 26, 2012  Wed 2:45 AM CT

EBAY: SEE CHART GET CHAIN FIND STRATEGIES
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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Education & Strategy

Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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