Trade of the Day: eBay (EBAY)

Ebay's Paypal payment system helped it soar through the holidays

   

We have been watching the big online retailers like eBay (NASDAQ:EBAY), Amazon (NASDAQ:AMZN) and Overstock (NASDAQ:OSTK) since Black Friday and Cyber Monday last year. Year-over-year online shopping growth clocked in at 24%, which is stellar in a year like 2012. eBay did particularly well at the time because growth through its payment system (PayPal) grew by 44%, which was largely driven by a 190% increase in mobile payment volumes. This is a sweet spot for PayPal, which may wind up being the primary activity of the company in the future.

The run up to the fiscal cliff vote wasn’t great for online retailers who were simultaneously dealing with somewhat sour news about December’s retail spending in general. eBay has gotten back to its post-Black Friday prices and started to consolidate as the S&P 500 ran into resistance.

We recommend an entry here in anticipation of earnings next Wednesday. The “whisper” numbers for earnings are already higher than older estimates and we think PayPal’s performance will surprise investors who are still trying to figure out how to accurately model eBay’s new growth model.

Recommendation: Buy to open the EBAY Feb. 55 Calls

We  have selected the February calls to give us a little more flexibility if the report looks good and momentum is building. We may want to hold the trade beyond the announcement but would not be able to do that for more than a day or two with the January expiration.

John Jagerson and S. Wade Hansen are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news.  Get in on the next trade and get 1 free month today by clicking here.



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