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Bulls Break Yahoo! Inc.'s (YHOO) Bearish Stranglehold

YHOO's deep out-of-the-money LEAPS are being targeted by call buyers today

by 6/18/2013 1:48 PM
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Option trading is sluggish on Yahoo! Inc. (NASDAQ:YHOO) today, but receiving the most attention is the January 2014 34-strike call. Nearly four out of five contracts traded at the strike have done so at the ask price, suggesting the activity has been fueled by buyers. Meanwhile, volume is outpacing open interest, indicating those speculators have bought the LEAPS specifically to open.

The 3,298 contracts traded at the strike did so at a volume-weighted average price (VWAP) of $0.67. Therefore, in order for today's bulls to gain, YHOO shares must jump to $34.67 (strike price plus VWAP) by January expiration. From the stock's present price of $26.72, that's an advance of nearly 30%. The stock hasn't conquered this breakeven rail since 2006, but the traders can rest a little easier knowing the most they have at stake is the premium paid.

Today's activity is a break from the norm. Yahoo! traders have been put heavy in the recent past. In particular, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day put/call volume ratio is 0.31. While that may not seem bearish in absolute terms, relatively speaking, it is -- ranking in the 90th percentile of annual readings.

Piling on to the pessimistic bandwagon are the analysts. Of the 26 brokerages following YHOO, 15 slap it with a rating of "hold" or worse, compared to 11 "buys" or better. Moreover, the equity's consensus 12-month price target is $27.48 -- less than a dollar above where it's currently trading.

The prevailing sentiment is a bit puzzling when one considers that Yahoo! Has tacked on over 34% year-to-date, and continues to surf atop its ascending 40-day moving average, which has contained a few mild pullbacks over the past month. Should the Internet name continue its current trajectory, or keep announcing buzz-worthy acquisitions, a round of analyst upgrades and/or price-target raises could send the shares even higher.

In other news, in the aftermath of the National Security Administration leak that is dominating the news headlines, Yahoo! Inc. (NASDAQ:YHOO) announced today that it has fielded over 12,000 data requests from U.S. law enforcement agencies.


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