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Put activity has ramped up to almost two times the intraday norm in Yahoo! Inc.'s (NASDAQ:YHOO) options pits, as the shares take a breather from their long-term uptrend. Specifically, 36,000 puts have crossed the tape thus far, and YHOO's shares are down 4.5% to trade at $32.60.
About 7,000 of today's put options have changed hands at the December 30 strike, making it one of the most active YHOO options of the day. Nearly two-thirds of the contracts went off at the ask price, suggesting they were purchased. Meanwhile, implied volatility has ticked higher, and volume exceeds open interest levels at the strike, pointing to the initiation of long put positions. Not to mention, data from the International Securities Exchange (ISE) confirms some of this activity is of the buy-to-open sort.
Today's bearish traders picked up YHOO puts, expecting the website concern's shares to drop beneath the breakeven price of $29.13 -- strike price minus the volume-weighted average price (VWAP) of $0.87 -- by the close on Dec. 20, when the options expire. This gives YHOO 10-plus weeks to slide 10.6% into territory last explored on Sept. 13.
Given that YHOO has traveled above its 20-day moving average since the beginning of September, it is possible the stock will use this trendline as a springboard, and recover from today's negative price action. Therefore, should YHOO's shares hold their ground atop the 30 strike through December expiration, the most today's put buyers stand to lose is the initial premium paid.
Of note, the bearish traders paid a pretty penny for their bets. YHOO's Schaeffer's Volatility Index (SVI) of 49% ranks higher than all other such readings taken throughout the year, indicating short-term option prices are expensive, relatively speaking. Furthermore, YHOO's 30-day, at-the-money implied volatility hit an annual high of 46.8% this afternoon.
On the technical front, Yahoo! Inc. (NASDAQ:YHOO) has more than doubled in value over the past year, and tagged a seven-year high of $35.06 last Friday. Against this backdrop, it's possible that today's put buyers are YHOO shareholders looking for some short-to-intermediate-term protection . By purchasing the puts, the traders lock in an acceptable price ($30) at which to sell their shares, should today's pullback continue.
The company is slated to enter the earnings confessional after the close on Oct. 15, and analysts, on average, are calling for a per-share profit of 33 cents. YHOO has matched or bested analysts' bottom-line estimates in all of the last eight quarters. Furthermore, the stock averages a gain of 1.4% the week after reporting.
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