In some respects, eBay Inc (EBAY) is on sale, but the best-looking buy right now is a long put position sans EBAY stock.
At the end of January and during the broader market’s volatile corrective action, EBAY stock got pummeled following its fourth-quarter results.
Removal of PayPal Holdings Inc (PYPL) synergies and a strong U.S. dollar assisted in bleak, below-views guidance and a near-13% swoon as investors looked past the online auction outfit’s profit beat.
Pragmatically and during such unforgiving periods of “risk-off” behavior, it’s hard to blame investors for tossing out the baby with the proverbial bathwater. But let’s face it, EBAY’s report was ultimately less-than-great.
And now, in the face of the markets’ almost dizzying bullish technical about-face and much weaker U.S. dollar, EBAY’s persistent “sale price” warns the better deal may be for bearish positioning.
EBAY Weekly Stock Chart
The weekly chart of EBAY stock shows a name that has lagged the market over the past several weeks off the broader February corrective bottom.
At a minimum, the price action is discouraging.
More of a problem for bullish investors is price action that suggests an emerging bearish trend is taking hold of EBAY stock.
Since releasing its earnings, EBAY has broken two key uptrend lines from 2009 and 2014 and dropped back below key highs from 2004 and 2013. And now it has rallied, rather weakly, off its February low to form a bearish flag.
Altogether and technically speaking, the situation presents an opportunity for bearish positioning against zone resistance as a lower high gives way to an anticipated lower low as part of a new bearish trend in EBAY.
An initial price target is a retest of recent lows near $21.50 and continued downside to $19.50 – $20, which maintains a 38% retracement level from the 2009 low and key October 2014 uptrend, pivot low.
EBAY Bearish Long Put Strategy
Given the anticipated downside, cheap premiums and expected late-April earnings announcement, the May $23 put is priced well for bearish investors wanting to short EBAY with limited risk.
With shares near $23.80, the put is trading for about 90 cents. If shares of EBAY were to retest the February low, intrinsic value of $1.50 allows for a minimum return of 67% without factoring in time premium.
Alternatively, a decline to $21.50 would allow for trader’s long the put to make any number of contract or spread adjustments to lower risk and increase profit opportunities. And bottom line, that’s always a good deal for bears to consider in lieu of shorting EBAY.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
