$EBAY bulls quadruple their money

Option activity has been consistently bullish on eBay (EBAY) all month, and traders cashed in on large positions today.

On Jan. 14, our Unusual Activity tracking systems detected the purchase of 4,500 Weekly $36.50 calls expiring this Friday, Feb. 7, for $0.58 to $0.70 with shares at $34.96. Volume was well over the strike’s previous open interest of 15 contracts, indicating that these were new positions.

Those calls traded for as much as $2.80 this afternoon, at least 4 times their purchase prices. The stock rose 11.33% in the same time period, underscoring how options can far outperform their underlying shares.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

EBAY is up sharply by 9.74% to $37.74 in afternoon trade. The online-auction giant’s shares have shot higher in the last hour after The Wall Street Journal reported that Intercontinental Exchange (ICE) has made a takeover offer for the company.