Shares of online auction site eBay (EBAY) have lost nearly one-quarter of their value in the past year and are nearly 50 percent off their highs. One trader is betting that the decline will continue in the coming weeks.
That’s based on the August $47.50 puts. With 77 days until expiration, 8,187 contracts traded compared to a prior open interest of 153, for a 54-fold rise in volume. The buyer of the puts paid $3.75 for the option.
Shares recently traded around $47, so the options are slightly in-the-money. The stock traded as low as $43.28 in the past few weeks, but have since bounced modestly higher, so the longer-term downtrend would need to return for this option to increase in value.
eBay has seen revenue slide 6 percent in the past year, and the company hasn’t been profitable. However, shares are valued at about 11 times forward earnings.
Action to take: Investors may like shares should the company return to profitability. The company is the dominant player in its space, and should continue to maintain that dominance, which should lead to a higher valuation in time. For now, wait for the current long-term downtrend to end.
For traders, the August puts are an attractive hedge against a further decline in markets here in the coming weeks. Traders can likely see mid-double-digit gains in the options should shares continue to drop.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.