Naz’ 100 (QQQ) constituent eBay (EBAY) releases its earnings report later this evening. Analysts expect the internet auction giant to deliver profits of $0.51 per share compared to the year ago period’s $0.47 result, while revenues are forecasted to increase from $2.20B to $3.15B.
Technically speaking, shares of EBAY appear poised for a rally of about 14% over the next couple months. Evidence suggesting a move higher rests on the stock’s current price consolidation pattern which has successfully held 50SMA support and prior highs after breaking out from a weekly diamond. The bullish situation is complimented by a mid TAPP zone price near $41 during July for both EBAY's daily and weekly time frames.
On the option side Wednesday, the largest trade of the session is a block print of nearly 12,500 July 40 calls for $0.80 with shares trading intraday near $36.25. With overall volume on the call standing at 15,500 and open interest of roughly 17,000, a closing of a position is always possible. Given the background technical picture, if this is the case, our view is the trader is buying in a short which would have been initiated at some point during the past two months since shares staged their initial breakout in late February and a contract that’s lost $0.35 in time value since Feb 23.
Figure 1: eBay (EBAY) Weekly View Bullish
For a current price of $0.71, the July 40 call is under modest relative pressure with shares down fractionally to $36.10. A naked long position requires a move in shares of EBAY to $41.42 or 15% above current prices and a bit north of the PS Elliott’s mid TAPP estimate in order to realize a double by expiration. Prior to that day and one which is still 92 calendar days out, quicker similar gains are possible. However, while theta isn't yet an issue, this type of bull will likely have to deal with a very modest volatility crush, which we'd estimate at around 10% given premiums are already priced at or below fairly steady statistical range readings of the past three months.
Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.
