$EBAY Q3 Earnings Cheat Sheet

by Enis October 15, 2014 11:21 am • Commentary

Event:  EBAY reports its Q3 earnings today after the close.  The options market is implying about a 4% one day move, which is slightly above the 4 qtr avg of about 2.75%, and in line with the 8 qtr avg of about 4%.

Sentiment:  Wall Street analysts have remained bullish on EBAY even as the stock has badly lagged the market over the past 18 months.  Analysts have 24 buys, 2s6 holds, and No sells on EBAY, with a 12 month average price target of around $61.  Short interest is low at 1.8% of the float, and EBAY is down 7% so far in 2014.

Options Open Interest:  Calls vastly outnumber puts in total open interest, by a ratio of around 1.5 to 1.  The one month average volume has been similar, at around 2.2 to 1 in favor of calls over puts.  The bulk of the open interest is in Jan15 expiration.  The Jan15 55 and 60 calls both have over 40k of open interest.  In shorter dated options, the weekly 52.50 and weekly 55 calls both have around 30k of open interest, and the Nov 52.5 calls also have around 30k of open interest.

Price Action / Technicals:  EBAY has remained rangebound for nearly 2 years.  The stock is now testing the $48 to $50 support area for the third time in 2014:

EBAY daily chart, courtesy of Bloomberg
EBAY daily chart, courtesy of Bloomberg

The stock looks like a frenetic sine wave, moving back and forth in a 20% range in a very consistent manner.  The stock has rapidly sold off from the high end of the range (after the news of the PayPal spinoff) to the low end of the range in the month of October.

Volatility:  30 day implied volatility has moved from a 2 year low to the higher end of the 2 year range in the past 2 months:

EBAY 30 day implied volatility, courtesy of Bloomberg
EBAY 30 day implied volatility, courtesy of Bloomberg

EBAY’s implied move is in line with its 8 quarter average, so the options market is not pricing in much “extra” volatility from the macro situation in the broader market.

Our View:  We have generally looked at bullish trades in EBAY each time the stock has tested the $48-$50 area over the past couple of years.  On the most recent trade, Dan simply bought stock and sold it for a 10% gain on the news of the PayPal spinoff.  This time around, while we are somewhat intrigued again, it is a bit more concerning from a catalyst standpoint since EBAY has now already given the activists like Carl Icahn what they’ve been asking for to boost the shares.  As a result, the underlying bid might not be as strong at support this juncture.  We are looking at potential trades, and will update with a new post if we execute anything.