Options Trading News

February 17, 2012  Fri 11:21 AM CT

eBay has been rallying, and one trader expects more upside.

optionMONSTER's Heat Seeker tracking program detected the purchase of about 15,000 April 36 calls for $1.01. A block of 8,000 April 34 calls was sold at the same time for $1.95, but volume was below open interest in the strike.

This activity suggests that the investor previously owned the April 34s and is now rolling the position to the February 36s. The transaction is interesting because the trader almost doubled the number of contracts owned, which will increase the position's leverage if EBAY makes new highs. The trader also collected a credit of $45,000.

The online auction stock is up 0.22 percent to $34.59 in early afternoon trading and has gained 13 percent in the last month. It's been climbing along with the rest of the market and as a strong economy lifts transaction volumes. The shares are now pushing against the same level that has been resistance since early 2011, so today's call buying reflects a belief that a breakout is imminent.

The next scheduled event that could serve as a potential catalyst is an appearance at the Morgan Stanley Technology, Media & Telecom Conference on Feb. 28. The company will not report earnings results until April 18.

Overall option volume in the name is twice the daily average so far today, with calls outnumbering puts by about 5 to 1, according to the Heat Seeker.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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