NOTES ON EBAY (EBAY)
Collar

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 to
$52.50.

2. August, was another volatile month. 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 strategy that
provides maximum protection. A covered call strategy will
provide some protection but not enough for a stock with the
month in and month out volatility that Ebay exhibits.

The protective put 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.

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.