DailyPlay – Opening Trade (EBAY) – March 21, 2023

EBAY Bullish Opening Trade Signal

View EBAY Trade

Strategy Details

Strategy: Long Call Vertical Spread

Direction: Bullish

Details: Buy to Open 6 Contracts April 21st Call Vertical Spreads @ $1.76 Debit per contract.

Total Risk: This trade has a max risk of $1,056 (6 Contracts x $176) based on a hypothetical $100,000 portfolio risking 1%. For this particular trade, we suggest using 1% of your portfolio value and divide it by $176 to select the # contracts for your portfolio.

Counter Trend Signal: This stock has been trading lower and has reached an over-sold condition, from where a bounce higher is expected.

1M/6M Trends: Bearish/Bearish

Technical Score: 6/10

OptionsPlay Score: 98

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Monday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

Investment Rationale

Stocks traded higher on Monday, after the weekend came with plans to save Signature Bank, Credit Suisse, and First Republic. Those helped give investors some relief over potential spreading bank-related fears, and by the close, the SPX had gained 0.9% (though the tech-heavy NDX only added 0.34%.) Recently badly beaten-down small caps were the day’s winner, with the IWM adding 1.3%.

My call for a trading range rally from the SPX holding support at 3864 got a good start. This is one of those times to be “cautiously bullish”, because I am in the camp that the current banking crisis is not likely a completed issue with only three domestic banks having cried uncle. Like you hear me say on our webinars, there’s never only one cockroach, and I don’t think that out of a nation of hundreds of regional banks, there are only three of them who are going down from the same issues that plagued the ones we already know of. As such, I am at the ready to turn more decidedly bearish, but at the same time, am willing to also play for a continued trading bounce.

As per open positions, I don’t usually cover losing long option trades that are down 90% or more. We are down 95% on our bearish GE put spread that expires on Friday. It would need to see about a 9% decline between now and then to even make the higher of the two strikes ATM. Should you choose to, you certainly can exit this lousy trade today.

For a new idea for today, let’s look at the daily chart of EBAY. To me, I think a good trading bottom is in place, and that a move up to the labeled unfilled gap is likely in coming weeks.

EBAY – Daily

Let’s put this trade on in two parts: 1) Let’s buy a half-position in the April 21st $42.5/$47.5 call spread today. (This is $0.50 in the money, but has significant open interest vs. the $43 call having none.) Yesterday’s close was marked at $1.76, which is 33% of the strike differential. Let’s buy the second half position on a stock price pullback to ~$42.50 for what then the current bid/offer for the same strikes as the first spread. I’m looking for the gap to fill up to $47.50.

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Tony Zhang