Ebay Now! and Selling the Straddle

I love a good channel trade - Ebay has bounced between $50 and $58 for a few months now and the wealth of data in this chart makes trading decisions easy.




















Pick up a few shares here in the low $50s and look for a flip when you have 10% or approach the blue line

Pull the reverse and short in the high $50s and cover when you have your 10%

Stops should be placed at range extremes .... any points poking out past the blue lines are viable "Alamo" points

Options - Sell the Straddle

Options can be used as an extension of channel trading  - if you consider the stock a buy in the low 50s (bottom of channel) and a sell in the high 50s (top of channel), try selling the following straddle.

• Write January 2014 Puts at $52.50 strike for $4.25
• Write January 2014 Calls at $57.50 strike for $1.88

This brings in $6.13 upfront and leave you with the following risks/obligations

Obligation to buy under $52.50

• If the stock drops under $52.50, you are obligated to buy shares from the put holder
• $52.50 - $6.13 = $46.37 .... we are only hurting if the stock drops under $46.37
• I am OK with this obligation as Ebay is a company I am comfortable owning

Obligation to sell above $57.50

• If the stock trades above $57.5, the call holder will excersize and make you sell shares at $57.5
• $57.50+$6.13 = $63.63 .... we are only hurting if the stock trades above $63.63

If the stock trades between $52.5 and $57.50, you keep the $6.13

If the stock trades between $46.37 and $63.63, you make something

This strategy brings in some nice income upfront - If you like Ebay as much as I do, consider buying shares at the same time the option trade is put on .... this does increase your exposure if the stock drops, but also nets an additional $5.50ish on the upside if the stock continues its dominant upward trend.

So why do I like Ebay?

I will expand on my analysis at a later date.... but for starters

Ebay is a great company for many reasons - strong revenue and profit growth (Revenue growth from $8bil in '09 to $14 last year), healthy business in recessionary environments (garage sale), great management, solid margins .... but what I like the most is their ability to innovate both organically and through acquisition.

Have you heard of Ebay Now!?

Ebay Now is a gut punch to Amazon. Using couriers, a $5 fee, and $25 minimum, shoppers in New York and San Francisco (only two test markets atm) can buy goods from local retailers and have them delivered in under an hour.

Impromptu party? Speakers and keg cups in one hour

Sandals broke walking around Central Park?

Date going well? Barry White CD and condoms (one of the most common uses)

Laptop fried before your big presentation? Boom! Laptop



Is it just a fad like Uber Ice Cream? I doubt it - one day delivery is an inevitability and Ebay's courier system is a smart/flexible counter to Amazon's massive warehouse expansions

$5 is a much smaller fee than I would have anticipated, and even with a $5 tip on top of that is a modest fee for most New York Salaries

Thats it for now!