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Yahoo! Inc. (NASDAQ:YHOO) option volume ran at more than two times the average daily pace yesterday, as 161,000 calls traded versus 58,000 puts. Against this increased demand, the stock's 30-day at-the-money implied volatility (IV) spiked 10.6% to 44.5% -- its highest level since mid-October.
Most active, however, was an option that doesn't expire for another nine-plus months. Specifically, YHOO's January 2015 40-strike call saw nearly 16,100 contracts change hands -- the majority at the ask price, suggesting they were purchased. IV moved higher, open interest added 15,141 positions overnight, and the International Securities Exchange (ISE) confirms significant buy-to-open activity.
By purchasing the out-of-the-money LEAPS contracts, Monday's traders are confident Yahoo! Inc. shares -- which have taken a step back in recent sessions -- will rebound north of $40 by January 2015 options expiration. Even if that fails to materialize, the most the speculators will part with is the initial premium paid.
From a longer-term perspective, yesterday's penchant for long calls is business as usual in YHOO's options pits. The stock's 10-day call/put volume ratio of 11.0 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) signifies 11 calls have been bought to open for every put in the last two weeks. What's more, the reading is at the top of its annual range, meaning traders have never scooped up calls (relative to puts) with greater rapidity in the past year.
It's no wonder, either, given Yahoo!'s technical tenacity. On a year-over-year basis, the Internet stock has advanced over 41% to its current perch at $33.24.
On the fundamental front, The Wall Street Journal reported yesterday that Yahoo! Inc. (NASDAQ:YHOO) may venture into the world of online programming. Looking forward, the company will report first-quarter earnings after the market closes next Tuesday. In each of the last eight quarters, YHOO has topped the Street's bottom-line expectations, for an average gain of 0.9% in the subsequent session. For next week's report, analysts are calling for a per-share profit of 37 cents -- a penny lower than a year ago.