eBay attracts bearish trade near highs
David Russell | email@example.com
optionMONSTER's Depth Charge monitoring system detected the purchase of 10,000 July 41 puts for $1.94 and the sale of equal number July 29 puts for $0.09. Volume was more than twice open interest at both strikes.
The trade cost $1.85 and will earn a maximum profit of 549 percent if the online-auction giant closes at or below $29 on expiration. It's known as a bearish put spread because it leverages a move between two specific price points. (See our Education section)
EBAY slipped 0.29 percent to $40.93 yesterday. The stock gapped higher on a strong earnings report eight weeks ago but has since been stuck around its previous peak from October 2007.
It bottomed last summer around $29, which could be leading some traders to believe that it could plunge back to that level in the event of a bad earnings report on July 18. Yesterday's put spread is probably the work of an investor who owns the stock and wants protection before the news is released.
Overall option volume in EBAY was twice the average amount in the session, with puts accounting for more than two-thirds of the activity.