$EBAY bulls, bears both win

Nimble option traders took big profits on upside positions in eBay early today, then posted significant gains in the opposite direction when the online-auction giant pulled back later in the session.

On Nov. 28, Investitute’s tracking systems showed that 10,200 Weekly $32 calls expiring on April 18 were purchased for $1.13 to $1.20 with shares at $29.04. This was clearly fresh buying, as volume was far above the strike’s previous open interest of 1,055 contracts.

Those calls traded up to $3.75 just after today’s opening bell, more than 3 times their purchase price. The stock rose 18.94% in the same time period, underscoring how options can far outpace gains in their underlying shares.

Around the same time this morning, 6,000 Weekly $33.50 puts expiring this Friday were bought for $0.40 to $0.50 against no open interest with shares at $34.09. Those puts traded up to $0.94 by the afternoon, double their average purchase price while the stock fell by a relatively small 3.87%, illustrating the kind of leverage that can be achieved quickly with options.

Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.

EBAY hit a session high of $34.75 in the first few minutes of trading today but closed at $32.90, still up 6.13% on the day. The stock rallied this morning after activist investment firm Elliott Management disclosed that it has taken a $1.4 billion stake in the company.