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Option Brief: Yahoo! Inc. (NASDAQ:YHOO) calls traded at a faster-than-usual clip yesterday, with speculators looking to next week, when Alibaba Group -- of which YHOO is a primary shareholder -- will hold the kickoff meeting for its planned U.S. IPO. By the close, YHOO saw roughly 58,000 calls change hands, representing a 30% mark-up to its average daily call volume, and more than double the number of puts exchanged.
The weekly 3/28 38.50-strike call saw the biggest increase to open interest overnight, with nearly 2,600 contracts added. Of the 2,644 contracts that traded at the strike, most crossed the tape in the final few minutes of the session, and 78% went off at the ask price, suggesting they were bought.
By purchasing the calls at a volume-weighted average price (VWAP) of $0.44, the buyers expect YHOO to be north of $38.94 (strike plus VWAP) by next Friday's close, when the options expire. As alluded to earlier, all eyes will be on Hong Kong on Tuesday, when Alibaba Group is expected to meet with potential underwriters regarding its planned U.S. debut. However, should Yahoo! Inc. (NASDAQ:YHOO) shares -- currently trading at $38.05 -- remain beneath the strike through next week, the most the buyers are risking is the initial premium paid for the calls.