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Calls Dominate as Yahoo! Inc. (YHOO) Option Volume Swells

YHOO call volume is at 11 times the norm, powered by a series of huge block trades

by 9/26/2013 3:03 PM
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Yahoo! Inc. (NASDAQ:YHOO) has experienced a massive influx in options activity today, with overall volume at close to nine times the typical pace. This has been driven primarily on the call side, where nearly 363,000 contracts have crossed the tape -- many via massive block trades -- compared to an expected volume of 34,000.

The session's two most popular strikes are the January 2014 40-strike and 35-strike calls. Most of their volume stems from a two-legged trade, wherein 99,083 of the higher-strike calls changed hands at the bid price of $0.51, and 67,451 of the lower-strike calls did so at the ask price of $1.55. In other words, we have what appears to be the construction of a ratio call spread, as one speculator bet on limited upside for the venerable search engine name over the next few months.

Elsewhere, a 23,659-lot of YHOO's January 2014 38-strike call changed hands at the bid price of $0.80. Trade-Alert speculates that this is likely the closing of a position initiated two days ago, when an identically sized block of calls was bought to open on a sweep, at premiums ranging between $0.67 and $0.70. If this is in fact the same trader, then he stands to pocket $0.10 to $0.13 per contract -- the $0.80 credit received today, less the various ask prices originally paid -- profiting from Yahoo's roughly recent advance. At last check, the shares were floating at $32.62 (up nearly 8% from Monday's close), but earlier, they notched a five-year high of $33.00.

In terms of more vanilla buy-to-open trades, we note the 7,700-plus contracts that have crossed at the weekly 9/27 33-strike put. The majority of the contracts changed hands at the ask price, for a volume-weighted average price (VWAP) of $0.45. Also, volume handily outstrips open interest, and implied volatility is 2.5 percentage points higher, cumulatively suggesting the creation of new long puts. In this case, the traders will begin to profit if YHOO is sitting at or below $32.55 (strike price less VWAP) by the closing bell tomorrow, when the weekly options expire.

Option Briefs offer a concise look at recent notable trading activity. For more in-depth coverage of securities from an Expectational Analysis« perspective, please visit our Trading Floor Blog section.


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