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eBay Inc. (NASDAQ: EBAY) stock is falling this morning after the company announced on Friday that it will list the entire inventory of General Motors (NYSE: GM) used-car segment. In addition, both GM and EBAY will develop marketing and other offerings designed to drive leads and sales to GM dealers. In theory, this should help out EBAY, but the stock is lower today as investors don't think it is good enough news to overcome the slumping economy. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on EBAY.After hitting a one-year high of $40.73 in October, the stock hit a one-year low of $25.64 in January. This morning, EBAY opened at $28.04. So far today the stock has hit a low of $27.60 and a high of $28.11. As of 11:00, EBAY is trading at $27.88, down $0.19 (-0.7%). The chart for EBAY looks bearish but improving, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.
For a bearish hedged play on this stock, I would consider an April bear-call credit spread above the $35 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. This particular trade will make a 4.2% return in two months as long as EBAY is below $35 at April expiration. eBay would have to rise by more than 25% before we would start to lose money.
EBAY hasn't been above $35 since November and has shown resistance around $27 recently. This trade could be risky if the economy turns around quickly, but even if that happens, this position could be protected by resistance EBAY might find at its 200 day moving average, which is currently around $34 and falling.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in EBAY or GM.
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Reader Comments (Page 1 of 1)
2-12-2008 @ 12:45PM
Mozelle said...
ebay is starting to make all the right moves I see. And listing GM's used car inventory will make them big bucks.
First quarter might not look so bad after-all.
Don't know about eBay still being under 35.00 come April!
2-12-2008 @ 7:12PM
foxxy said...
There will be a boycott by ebay sellers AND buyers Feb 18th-25th. This is to protest fee hikes and policy changes that include feedback, it's also to protest paypal holding the monies of new buyers and sellers for upto 21 days if PP finds it 'necessary'
Please check out this discussion thread on ebay.
Please also check out cnn.com, this news is on the front page.
Please consider supporting us and joining, we have had many buyers join already.
Please help us spread the word to other sellers. Believe me, this is not just a seller issue, this directly affects buyers as well. Pricing and availiblity are just 2 areas you will feel the pinch.
Many of us have already shut down stores. Many are already listing on other sites. If you want the ebay you know and have come to love, please, give your support. But check out the details first.
Thank you for listening,
2-12-2008 @ 9:26PM
debipier said...
Let's see, bringing in a failing company which carries lemons, to another failing company is not what I call a great and profitable move... Pay attention Ebay!! You are losing all of your best sellers because of your greed... Actually lieing to them, telling them that you were decreasing fees, only to find out that you actually raised them and set the seller up for failure!! Shame on you!! Look at the stock market... I see another Enron in the making... If I owned stock, I would get out while your shares are worth the paper it's they are printed on it...
I am moving my buisness to a company (onlineauction.com) that works for it's customers; the Sellers, and let's me deal with my customers; the Buyers... A much less volitile environment where the buyers have not been pitted against the sellers...
2-13-2008 @ 11:24AM
ppeggysm said...
I was a snall Ebay seller and have closed my store and ended all my listings in response to Ebay's upcoming changes. In addition to fully supporting the Ebay Boycott, I will now also boycott GM products. When the time comes for me to purchase another vehicle-IT WILL NOT BE GM!
2-14-2008 @ 11:56PM
Dave said...
As An eBay Buyer..I Really Hate to see that eBay.com is ruining the lively hood of so many Honest and Disabled and Veteran Sellers!!!!... Many Of The Smaller Sellers Who Helped Build eBay Have No Other Way To Make A Living!!....I Think Sellers Should Take Control!...And, A Strike May Be Most Definitely In Order!!!!!...If most of the Sellers abandoned their listings for a Week or MORE!! and Buyers "Don't Bid Or Browse"..It May bring eBay Management to their Senses!!...My Favorite Business Management Professor at GA. TECH always said "If It Ain't Broke...Don't Try to Fix It" ...In My Humble Opinion....The Proposed Feedback Change and the 21 Day Paypal.com Holding Period might be "Unconstitutional" & "Illegal"...."One Sided Feedback" may be a violation of the "Equal Protection Clauses" in the the various State and the Federal Constitutions!!.....Additionally....Both The New "Unequal Feedback Policy" and the "21 Day Holding Period" may require that eBay act as a "Law Enforcement Agency" and a "Court Of Law " in order to settle contractual disputes between Buyers and Sellers!!..Both Of These Actions May Be Extremely Illegal!!.... We Need To Help Ebay Save Itself!!....If One Strike doesn't work, Sellers may need to do it Again and Again--->Until it Does Work!! .... Hopefully!!, Persistent Sellers Will Convince eBay Management to Withdraw these proposed changes and return to Business As Normal Before The Law Enforcement Agencies and The Federal/State Courts Bring Them DOWN!! I have heard that One Of The Best Civil Trial Lawyers in Atlanta may be just waiting until the proposed changes take place before filing a multi billion dollar Class Action Lawsuit (On Behalf Of "ALL" SELLERS) against eBay, Paypal and their new cohort General Motors for Violation of the "Equal Protection and Numerous Other Clauses" Of The US Constitution!....Additionally....He may be requesting that US Magistrates and the Attorney General issue Felony Criminal Warrants requesting immediate arrest of all eBay Management and all employees involved in making feedback decisions(in which they act as a Law Enforcement Agency...AND... A Court Of Law!!) I Am Afraid That "Good Attorneys" and an almost Trillion Dollor "Class Action Suit" may Bankrupt eBay, Paypal and General Motors!! It will be interesting to see how much it will cost eBay, Paypal and Genral Motors to reimburse all of the Sellers that are being be forced to leave eBay and give up their only source of income because of these New Feedback and Paypal Rules!!!! .....Maybe Trillions!! ....My Professor Also Said..."Nothing Is "Forever"...Except Death And Taxes!!....STRIKE VICTOROUSLY!!