1. Ebay traded in a very wide range during July 2003. It started
the month around $51.50 and traded up to $57.50 before trading
down to $54.40. Within a week it traded to a high of $59.00.
The week after that, the end of the month, the stock was down
2. August was another volatile month for options investing
The stock had a high of $57.25 and a low of $50.00.
3. The stock started the month of September trading at $56.50.
It traded down to $50.50 then back up to $57.00.
4. Volatility continued in October. The stock had quite a range
with a high of $61.50 and a low of $53.50. Moreover, the stock
had no less than 5 gap openings. The gap openings were almost
evenly divided between ups and downs.
5. The pattern continued in November 2003. The stock started
the month by quickly putting in a high around $58.50. It then
traded down, reaching a low around $50.75, before rallying and
trading back up to $57.00 before the months end.
6. December began with the stock trading around $57.00. It then
moved down quietly to $55.00 by the middle of the month. By
the end of the month, Ebay was trading at $64.00, up an astounding
$9.00 in a little more than two weeks.
Conclusion: A stock this volatile needs a hedging options investing
strategy that provides maximum protection. A covered call options
investing strategy will provide some protection but not enough
for a stock with the month in and month out volatility that
The protective put options investing strategy would work in
terms of maximum downside protection, but at what cost? With
volatility this high, the puts will be very expensive, maybe
too expensive. This situation is perfect for employing the collar
options investing strategy.
The sale of a call against the purchase of the put will at least
partially offset the expense of the put, making the downside
maximum protection affordable, while still leaving room for
capital appreciation in this options investing