After selling a call spread on AMD in last week’s Options Trade Of The Week, we are going back to the well by selling another call spread this week.
This time we will be doing so on EBAY.
We have continued to see a strong market again this week which has left many stocks on our watch list at overbought levels. However, we haven’t seen much selling yet which is required before we are interested in buying long puts.
Instead of buying long puts which is too aggressive on the bearish side at this point, selling a call a spread is a better way for us to get that bearish outlook but with a neutral kicker.
We can still make money on this trade if the stock moves sideways.
EBAY – Overbought Trade Opportunity
EBAY has joined in on the fun to the upside moving from 35.50 on 6/3 to almost 39.50 on 6/13. As a result, the stock is due for a pullback or at the very least a period of consolidation.
This makes our options play quite simple: we will be selling a call spread which is a neutral to bearish trade that would benefit from a pause in the rally.
We are selling the July 19 40/42 call spread for .61 or $61 per spread.
This means we are selling the 40 call and buying the 42 call at the same time to leave us in a risk defined trade.
For a complete break down of our Trade Of The Week make sure you review the video below.
We will cover the details of how we are placing trade trade including how we plan on managing it from start to finish.
Feel free to contact me directly with any questions you might have. Mike@netpicks.com.