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Option Brief: For the second straight session, Yahoo! Inc. (NASDAQ:YHOO) is a target for long-term option bulls, with speculators apparently buying to open the January 2015 40-strike call. Almost 13,200 contracts have traded at the LEAPS strike -- mostly at the ask price -- and implied volatility is trending higher, hinting at fresh initiations. Elsewhere, however, some traders are either betting on or hedging against a retreat for YHOO over the next few weeks.
The equity's out-of-the-money June 30 put has seen nearly 6,000 contracts cross the tape. Ninety-three percent of the puts traded on the ask side, and volume has surpassed open interest at the strike, pointing to newly bought bearish bets -- a theory confirmed by data from the International Securities Exchange (ISE).
By purchasing the puts to open, the buyers have one of two motives. "Vanilla" bears are hoping YHOO lands south of $29.61 (strike minus volume-weighted average price of $0.39) by the close on Friday, June 20, when back-month options expire. From YHOO's current perch at $33.69, it would take a decline of 12.1% in order for the stock to breach breakeven.
However, considering YHOO's longer-term ascent, the puts may have been bought by speculators looking to hedge their shares in the event of a notable retreat in the near term. By purchasing "protective puts," the buyers lock in an acceptable exit price for their shares ($30 apiece), should the security fall south of the strike before expiration. Their primary goal, though, remains for YHOO to resume its uptrend.
Whatever the motive, the maximum risk on the puts is the initial premium paid, should YHOO hold its ground north of $30. The stock's Schaeffer's Volatility Index (SVI) of 34% stands in the bottom third of its annual range, suggesting YHOO's short-term options are attractively priced right now, from a volatility perspective.
On the charts, Yahoo! Inc. (NASDAQ:YHOO) shares are currently testing the waters atop familiar support in the $33-$34 region, which acted as a launching pad for the stock back in April, and has served as a technical backstop since November. What's more, the stock's upward-sloping 50-week moving average is docked in the neighborhood, which should reinforce support here. Off the charts, Wall Street continues to speculate on how the company will (or should) spend its Alibaba-IPO windfall, with the Chinese Internet issue -- of which Yahoo owns a major stake -- expected to go public in the U.S. in the next few months.