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Short-Term Bulls Take Aim At Yahoo! Inc. (YHOO)

Yahoo! Inc. option traders scooped up in-the-money calls yesterday

by 5/13/2014 9:03 AM
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Yahoo! Inc. (NASDAQ:YHOO) call volume more than quadrupled put volume yesterday -- 88,000 contracts to 21,000. Not surprisingly, nine of the 10 most active strikes were on the call side of the aisle. Far and away the most heavily traded was the weekly 5/30 34-strike call, where 20,835 contracts -- including a block of 19,105 -- changed hands during the course of the session.

Nearly all of the activity at the weekly strike transpired at the ask price, suggesting the YHOO calls were purchased. In addition, implied volatility ticked higher, and open interest added nearly 20,600 positions overnight, making it safe to assume the contracts were bought to open at a volume-weighted average price (VWAP) of $1.37. This theory is supported by data from Trade-Alert.

In short, Monday's in-the-money call buyers expect YHOO will keep rising through the close on Friday, May 30, when the weekly options expire. Specifically, they need the shares to topple $35.37 (strike plus VWAP) -- a 3% premium to the current per-share price of $34.35. However, even if the contracts expire out of the money, the traders holding onto the calls will forfeit no more than the initial premium paid.

Yesterday's penchant for call buying reflected a broader trend in Yahoo's options pits. During the past 10 weeks on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity has racked up a call/put volume ratio of 4.61 -- higher than 99% of similar readings from the past year. This bias toward bullish bets over bearish is understandable, too, given the stock's 30.5% year-over-year advance.

On the fundamental front, Yahoo! Inc. (NASDAQ:YHOO) is scheduled to give presentations today and tomorrow at the SunTrust Robinson Humphrey Internet & Digital Media Conference. Also, next Monday, the tech firm will take part in the J.P. Morgan Technology, Media and Telecom Conference.


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