eBay Inc. (EBAY) PriceWatch Alert Could Hit 24.63% Return

Posted on Friday, August 29, 2008 8:07 AM

eBay Inc. (NasdaqNM: EBAY) closed yesterday at $25.40. So far the stock has hit a 52-week low of $23.52 and 52-week high of $40.73. eBay stock has been showing support around 24.46 and resistance in the 25.96 range. Technical indicators for the stock are Bearish and S&P gives EBAY a very positive 5 STAR (out of 5) strong buy rating. EBAY appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at an Apr '09 26 covered call (QXB DZ) for a net debit in the $22.48 area. That is also the break even stock price for this trade. This covered call has a 232 day duration, provides 11.50% downside protection and a 15.66% assigned return rate for a 24.63% annualized return rate (comparison purposes only). A lower cost hedged play for this stock would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the EBAY Jan '10 17.50 Call (YEU AA) and selling the Apr '09 26 call (QXB DZ) for a $6.93 debit. The trade has a 232 day life and would provide 3.82% downside protection and a 22.66% assigned return rate for a 36.00% annualized return rate (for comparison purposes only). eBay does not pay dividends at this time. [For more information on these strategies along with more details on possible risks go to www.iotogo.com/HPWAinfo]