For Friday’s Trade of the Day, I’m going to cheat and rip-off an idea from latest episode of Options Action. Mike Khouw discussed the trade and, after making a good call on Nike (NKE) the week before, let’s consider his most recent bearish strategy idea. Basically, the longer-term EBAY chart is in a downtrend and the company is no longer a dominate player in the tech industry. In fact, it gets most of its revenues from advertising, according to Khouw.
His idea is an August 17 – 21 put spread at $1 even. Shares are around $20.95 and this trade offers a potential $3 pay-off if shares fall to $17 or less by the August expiration. The strategist will be exposed to the company’s earnings, due out in mid to late August. The stock has some support just above $20. If it doesn’t violate that price level, consider exiting before the earnings rather than run the risk of holding the trade through a post-earnings rally. (Update 6/28: Trades at 1.10)
About the Author (Author Profile)
Frederic Ruffy is a well-known trader, writer, and strategist who has spent years educating investors and creating intelligent, insightful, unbiased market observations that are frequently cited by the Wall Street Journal and other financial publications. As senior analyst, Fred provides frequent and regular notes and daily updates for activity of interest.