As we prepare to round up another interesting week of trading stock options, I consider it expedient to provide an update on how options of eBay Inc. (NASDAQ:EBAY) should be traded. eBay is a $63.76 billion global technology company. The company enables commerce through three reportable segments: Marketplaces, Payments, and GSI. The company by providing online platforms, tools and services to help individuals and small, medium and merchants around the globe engage in online and mobile commerce and payments.
Exactly one month ago, I wrote a piece on eBay titled “EBAY Has Been Punished Enough, We Can Buy Calls Now.” In that post, I opined that the selloff activity on eBay has gone too far and that the company has the fundamentals to emerge stronger and reward bulls. I also mentioned that the selloff provided a unique opportunity to make entry position on eBay stock and options. I then recommended that you buy EBAY Oct 2014 55.000 call (EBAY141018C00055000) if it drops to $2 apiece that day. Interestingly, the option did not fall to $2 that day or that week; hence, I take it that neither you nor I initiated position in the contract.
30 Days Later
The stock dropped 3.8% from a high of $52.40 on April 30 when I wrote the piece to a low of $50.39 on May 8. However, a month after I recommended that call, eBay is trading in the range of $49.81 to $50.37, far below the trading price at my initial bullish position. Interestingly, the October $55 call options contract that I mentioned that day now has an asking price of $1.36 at a 32% discount to my initial entry position.
Update on eBay
eBay remains a fundamentally sound company with a great product mix and dynamic management team. Nonetheless, the optimistic outlook of the company this year has been questioned after the company announced a significant security breach that could affect the accounts of millions of users.
I along with other eBay users got an email asking us to change our eBay passwords. The effect of this security breach on eBay can be better imagined by remembering that Target is still far from escaping from the fallout from grace with the market after its security breach.
PayPal, a subsidiary of eBay has maintained that it was not affected by the breach; yet, the statement has failed to allay the fears of security-conscious (especially when a payment system is involved) users. However, many users consider this official stand to be nothing more than corporate damage control. Nonetheless, it is too early to predict how much damage the security breach will have on stocks and options of eBay; yet, the fact remains that we must reevaluate our position on the stock in light of the recent events in the news.
How to Trade EBAY Options
Apart from the cloud that is now hovering over eBay because of its security breach, the company is still a fundamentally strong bullish play. The EBAY Oct 2014 55.000 call (EBAY141018C00055000) contract that I recommended in April is now super attractive at $1.36. However, I think it wiser to opt for a contract with a later expiry date while we wait for the storm of the security breach to pass. I will be looking at EBAY calls next week and I am likely to buy the EBAY Jan 2015 55.000 call (EBAY150117C00055000).
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