Dan highlighted the unusual options activity in EBAY starting late last year, with a hunch that an activist was getting involved in the stock. That turned out to be the case, with Icahn’s initial announcement in January, that happened to coincide with a weak earnings report from the company.
Dan and CC had a couple of nice trades in EBAY playing for strength in the stock. The first trade was taken off after the earnings report in January, and the second trade was taken off for more than a double when EBAY neared $60 in late February.
Since late February, EBAY has been leaking lower, despite Mr. Icahn’s best efforts to initiate enthusiasm for his plan to break-up the company:
The stock is just above its rising 50 day moving average, which is around $55.60. However, the longer-term technical picture does not look great here, since EBAY was unable to hold its breakout above the $57-$58 area, which had served as resistance on multiple occasions throughout 2013.
As a result of this false breakout, I would anticipate a significant amount of resistance for EBAY in the $58-$60 area going forward, as many of the traders who bought the breakout will be looking to sell at break-even if given a chance.
On the bullish side, Mr. Icahn is not known to simply go away quietly due to a company’s objections. He is likely to continue to pressure EBAY through all means possible to spin off PayPal. His mere involvement offers some sort of downside support for the shares, as market participants might be willing to buy in the low $50’s since Icahn is on the beat.
With EBAY back in its $50-$58 range that has been relevant for much of the past 18 months, we might look at a range trade in the coming weeks if we get a favorable entry in the options.