With expectations the eBay (Nasdaq:EBAY) earnings report could be “volatile,” Goldman Sachs’ John Marshall and Maria Grant, equity derivatives strategists for the company, recommend buying “low cost” options as a hedge against the stock before the earnings report slated for April 21.
The specifics recommended by the two would be to acquire May $25 puts which would empower the buyer to sell eBay shares if they choose to.
Option prices have fallen for eBay as the 20-day historic volatility, which is used to measure the movement of the share price of a company, has moved to its lowest level since July 2007, dropping to 19.81 on Tuesday.
Looking forward to the rest of 2010 and 2011, Goldman analyst James Mitchell was cited as saying that eBay’s earnings will probably be volatile during that time, and expects the company to give guidance confirming that.
As far as options prices, it looks like traders believe when the earnings report comes out it will result in a one-day loss or gain of approximately 7 percent for eBay, a smaller move than has been experienced over the last couple of years when the earnings report has been released.
Other reasons cited for wider swings going forward is competition, and the probability that currencies in Europe and the UK will weaken, with the euro and British pound expected to drop in value, which would decrease the earnings estimates analysts give the company.
One part of the company investors and analysts continue to like it the payment processing arm PayPal, which is thought to be the major catalyst behind the increase in price of the stock so far in 2010.
