$EBAY Looking More & More Like Activist Investor Bait

by Dan November 26, 2013 3:38 pm • Commentary

Yesterday we closed a losing bullish trade in EBAY as the stock broke-down below a fairly important technical support level that it had bounced of 5 times this year at $50 (red line below).  The stock continued its slide today on no news, capping a 10% drop from the recent highs made on Nov 14th.

The stock just recently reversed off of $48, in almost a straight line and there was some interesting bullish options activity to note.

First lets look at the technical set up. The one year chart below shows the break and the bounce off of what looks like intermediate term support (green line below) going back to last December:

EBAY 18 month chart from Bloomberg
EBAY 18 month chart from Bloomberg

It’s very challenging to come up with good reasons for EBAY’s massive ytd under-performance (down 4%), especially in a market where stocks like YELP, Z and GOGO are up more than 100%.  I know, I know, rock solid balance sheets, double digit earnings and sales growth and near monopolies in their core business are not the sorts of things that attract intelligent investors in the sort of stupid dotcom market we are in at the moment.

But a couple weeks ago there were rumors that Carl Icahn has taken a stake, just a rumor, and then today there was some fairly curious bullish options activity, on a day that saw the stock make new 52 week lows.

Just a bit ago a trader bought 50,000 July 62.50/65 Call Spreads paying .275, that trade breaks-even at $62.775 on July expiration, up 28% from current levels, which would also be about 6% above the all time highs made in 2005.

If you were inclined to agree that activists could have a field day with this company, this is not the trade that you would put on to get long exposure as it has a very small delta.  But you would put this trade on to add leverage to a stock position if you thought a rip your face off activist like Dan Loeb, or Carl Icahn were involved and gonna shake stuff up… hell, if I were those guys and I was building a long stock position this also exactly the sort of leverage I would add the position.

Stay tuned, we no longer have a bullish position but are looking for the right re-entry and structure.