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

Yahoo! Inc. option bulls bet on an extended run higher

by 6/26/2014 2:09 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). Falling off the list since last time were Altria Group Inc (NYSE:MO), CBS Corporation (NYSE:CBS), The Coca-Cola Company (NYSE:KO), and eBay Inc (NASDAQ:EBAY).
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Yahoo! Inc. is bucking the broad-market trend lower this afternoon -- up 1.2% at last check -- following news that Chinese e-commerce giant Alibaba Group (of which YHOO is a primary shareholder) will list its shares on the New York Stock Exchange. What's more, today's move higher comes as traders shrug off a tepid "equal weight" initiation for the stock at Barclays overnight. Against this backdrop, calls are trading at more than two times the average intraday rate, and are outpacing puts by a 4-to-1 margin.

January 2015 calls are in heavy rotation this afternoon, with more than 42,000 contracts trading at the 45 and 50 strikes. Diving deeper, short-term contracts are also in demand, as evidenced by the equity's 30-day at-the-money implied volatility (IV), which has shot 5.1% higher to 34.9% -- its loftiest perch since mid-May. Specifically, the stock's August 33 call has received notable attention, with 5,078 contracts on the tape thus far. The majority of these calls have changed hands at the ask price, IV is up, and volume outstrips open interest, collectively pointing to buy-to-open activity.

With YHOO last seen at $33.65, these calls are currently in the money. However, in order for today's call buyers to profit, the stock must be sitting north of breakeven at $35.04 (strike plus the volume-weighted average price of $2.04) at the close on Friday, Aug. 15 -- when back-month options expire. Gains will accumulate with each additional move north of here, while losses are capped at 100% of the premium paid, should YHOO finish below the strike price at expiration.

Of note, the lifetime of these back-month calls encompasses YHOO's next turn in the earnings confessional, tentatively slated for the week of July 15. Following its last quarterly report, the stock went on to log a 6.3% gain in the subsequent session. For Yahoo! Inc.'s (NASDAQ:YHOO) second quarter, Wall Street is expecting a profit of 38 cents per share -- a 3-cent improvement over the company's year-ago results.


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