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eBay reports after the bell Wednesday and has had a great run higher. It is starting to look tired on the daily timeframe, perfect for an earnings trade with options with only 2 days left to expiry. The Relative Strength Index (RSI) is curling over and the Moving Average Convergence Divergence (MACD) indicator is fading.

There will be some stalling lower at support near 31 and through that lower at 30 and 28.20 before the channel bottom at 27. The weekly chart shows a long legged doji forming, albeit with two days left. The RSI on this timeframe is still under 60 as well. Not solid weakness but not strong, good enough for a one day trade.

The At the Money Straddle prices in a $2 move, or 6%, approximately for a range of 31.3 – 35.30, and the last 6 quarters it has moved an average of 3.4% with an extreme of 7.7%.

Trade Idea: Buy October 33/32 Put Spread Risk Reversal and sell the October 35 call to fund it.

This combination, buying the October 33 Put and selling the October 32 Put and the October 35 call should be about free. You should be prepared to hedge this by buying the stock on a move over 34.52, today’s high. If not consider only the Put Spread, buying the October 33 put and selling the October 32 put. This is available for about 31 cents or a reward to risk ratio of 3:1.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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