eBay to Play the Icahn Card: Buy EBAY Calls Now

Exactly four months ago today on May 30, I wrote an update on an earlier April recommendation on how you should trade the options of eBay Inc. (NASDAQ:EBAY). I concluded that piece by saying that eBay remains a fundamentally strong bullish play despite fears that the company might be in a precarious position after announcing a security breach. I proceeded to recommend the EBAY Oct 2014 55.000 call (EBAY141018C00055000) while urging traders to keep tabs on the EBAY Jan 2015 55.000 call (EBAY150117C00055000) contract.

Four Months Later

When I wrote my last eBay piece, shares of the E-commerce site were trading around $49.81 per share. As at 11:19AM EDT today, shares of eBay have gained 6.84% to trade around $56.26 per share to mark a 12.94% gain in four months at a period when most people were expecting the stock to experience a massive decline. The Oct 2014 55 call had gained 76.47% from an asking price of $1.36 in May to a current asking price of $2.40 and the Jan 2015 55 Call has gained 183.08% to $3.85.

Why Shares of eBay Are Surging Today

Shares of eBay are surging today on strength of news that eBay has finally decided to spin off PayPal as a separate publicly traded company that will be listed sometime next year. Talks of spinning off PayPal started sometime in February when activist investor, Carl Icahn mentioned his intention to initiate a proxy fight to spin off PayPal.

The need to spin off PayPal from eBay is long overdue because PayPal has more to gain as an independent company than it currently obtains from being tucked under eBay. The separation of PayPal is also important in order to make the two companies more competitive especially given the growing strength of Alibaba and the emergence of Apple Pay in the payment industry.

I posit that the separation will create sustainable value for shareholders over time and we can expect sustained buying action on the stock as investors jump in to get a piece of the action.

Why You Should Keep Tabs on eBay

Another good reason why eBay options are good for your portfolio is the positive buzz that the stock has been generating in recent times. For instance, there is a rumor making rounds that Google is interested in purchasing a 40% stake in eBay at $68 per share or $85B. The rumor, which moved the stock by as much as $2, is the kind of positive buzz that rewards traders on bullish plays on tech stocks.

The second reason to keep tabs on eBay is that the company is set to release its Q3 2015 results in about two weeks from today on October 15. eBay fell short of expectation on earnings estimate in the second quarter and there are strong indications that the company is on track to deliver an outperformance in the third quarter.

How to Trade eBay Options

I am optimistic about the possibilities inherent in eBay in the short and long terms and I am especially confident that the bullish wave will continue until when PayPal is finally split off. The EBAY Jan 2015 55.000 call (EBAY150117C00055000) is still ripe for the taking at $4.30. If you are worried about time decay, you may want to consider the EBAY Apr 2015 57.500 call (EBAY150417C00057500) at an asking price of $3.80.

— Daily Option Alerts

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