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Option Brief: Yahoo! Inc. (NASDAQ:YHOO) options were once again in demand yesterday, as speculators (and major financial institutions) tried to get in on the Alibaba action. The U.S. IPO of the Chinese e-commerce giant -- of which YHOO is a primary shareholder -- is expected to be the biggest technology debut ever.
Jumping right in, the stock's 30-day at-the-money implied volatility spiked 3.5% to 36.1%, reflecting a growing affinity for short-term contracts. Roughly 81,000 calls crossed the tape, representing a 73% mark-up to YHOO's average daily volume. Likewise, about 40,000 puts changed hands -- a 75% mark-up to the norm.
Option bulls established new positions at the May 39 call, which saw open interest spike by nearly 6,600 contracts overnight. Plus, a healthy portion of the contracts traded near the ask side, and the International Securities Exchange (ISE) confirms that many of the calls were bought to open. By purchasing the calls to open, the buyers expect YHOO to be north of $39 when the options expire at the close on Friday, May 16. Risk, meanwhile, is limited to the initial premium paid for the calls.
Elsewhere, more conservative traders placed neutral-to-bullish bets by selling to open the April 35 put. A block of 7,854 puts traded closer to the bid price, and open interest at the strike skyrocketed by more than 8,800 contracts overnight. Assuming the contracts were, in fact, sold to open, the traders expect YHOO to remain north of $35 through the close on Thursday, April 17, when newly front-month options expire. In this best-case scenario, the puts will remain out of the money, and the sellers can retain the entire net credit.
Technically speaking, Yahoo! Inc. (NASDAQ:YHOO) followed the tech sector into the red yesterday, settling at $36.68, but has since bounced back 0.8% to flirt with $36.96. The $36.50-$37 region has emerged as support for the shares during the past few weeks, during which time the stock has taken a breather from its longer-term uptrend.