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Most Active Options Update: Yahoo! Inc. (YHOO)

One Yahoo! Inc. trader uses options to simulate a long stock play

by 3/13/2014 2:14 PM
Stocks quoted in this article:

The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest this afternoon is Yahoo! Inc. (NASDAQ:YHOO).


Yahoo! Inc. has been a long-term outperformer on the charts, and since lingering near $15.40 in mid-September 2012, the stock has tacked on roughly 142% to trade at $37.21. Helping the equity in its run higher has been its 120-day moving average. More recently, this rising trendline helped contain brief pullbacks by the stock, and send YHOO higher in subsequent sessions. In today's session, although YHOO is seeing pressure from the broader equities market, the security is still maintaining its foothold atop this familiar layer of support.

In the options pits, meanwhile, one speculator expects the security to extend its momentum, but instead of buying YHOO shares outright, she is using options to simulate the returns of a stock purchase. Earlier, several blocks totaling 3,650 July 34 puts were sold on the International Securities Exchange (ISE) for a volume-weighted average price (VWAP) of $1.41. Around the same time, symmetrical blocks of July 43 calls were bought on the same exchange for a VWAP of $1.59. Data from the ISE confirms that new positions were initiated at each strike.

By establishing a split-strike synthetic long stock position for a net debit of $0.18 per pair of contracts, the strategist expects YHOO to rally north of breakeven at $43.18 (call strike plus net debit) by the close on Friday, July 18, which is when the options expire. Gains for the trader are theoretically unlimited beyond this point. If YHOO remains in the $34-to-$43 range over the next four-plus months, the loss will be limited to the initial cash outlay. However, if the security makes an unexpected move below $34 -- a level not breached since mid-November -- significant losses could accumulate due to the sold put position.

On the fundamental front, Alibaba Group Holding -- in which Yahoo! Inc. (NASDAQ:YHOO) has a significant stake -- is reportedly very close to deciding the location of its impending IPO. According to sources, the China-based e-commerce issue is nearly 100% sure it will list in New York.


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