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Option Idea of the Week: Yelp Inc (YELP)

Is YELP poised for another banner year on the charts?

by 1/3/2014 10:03:19 AM
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Yelp Inc (NYSE:YELP) has been an outperformer on the technical front, soaring about 237% year-over-year, and outpacing the broader S&P 500 Index (SPX) during the past month. What's more, the stock's recent pullbacks were contained by its 100-day moving average, after which the shares bounced higher. Nevertheless, there is still quite a bit of pessimism hanging over the Internet concern, which could serve as a contrarian tailwind over the next few months.

Daily Chart of YELP since January 2013 With 100-Day Moving Average

Digging deeper into the data, the security's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.59 registers in the 77th percentile of its annual range, denoting a healthier-than-usual appetite for puts relative to calls during the last 10 weeks. Should these put buyers unwind their bearish positions -- especially at YELP's out-of-the-money strikes -- it could add more fuel to the stock's fire down the road.

Meanwhile, short interest rose by 2.4% during the most recent reporting period, and now accounts for a lofty 14.8% of the equity's available float. With roughly 7.9 million shares currently sold short, there is the potential for YELP to benefit from a wave of short-covering activity, should the stock continue along its upward trajectory.

Also of note, analysts seem to be evenly split toward the security, as 11 brokerage firms have handed out "buy" or better ratings, compared to 11 "hold" suggestions. Also, YELP's consensus 12-month price target of $68.24 reflects a premium of just 0.2% to the stock's present perch at $68.11. This leaves some wiggle room for a round of upgrades and/or price-target hikes, which could give the shares an additional boost.

Traders hoping to bet on another run higher for Yelp Inc (NYSE:YELP) may want to think about purchasing the equity's in-the-money May 55-strike calls, which sport an ask price of $18.90. Speculators should be aware that the company is tentatively on tap to report fourth-quarter earnings between Feb. 3 and Feb. 7.

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