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Yahoo! Inc. (YHOO) Option Buyers Bet On an Alibaba Boost

Yahoo! Inc. traders are buying calls at a rapid-fire rate

by 5/6/2014 11:15 AM
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Option Brief: Yahoo! Inc. (NASDAQ:YHOO) calls have more than doubled puts today, as speculators wait with bated breath for the Alibaba IPO filing, which some media outlets expect sometime this week. So far, roughly 28,000 YHOO calls have changed hands, compared to fewer than 10,000 puts. While demand for short-term options is on the rise -- the stock's 30-day at-the-money implied volatility (IV) is 2.6% higher at 39.2% -- the October 39 call has garnered the most attention.

More than 7,800 contracts have traded at the aforementioned strike, with close to three-fourths crossing on the ask side, suggesting they were bought. Plus, IV at the strike is edging higher, and volume exceeds open interest, hinting at fresh initiations. What's more, the International Securities Exchange (ISE) confirms that at least some of the calls were bought to open.

By purchasing the calls at a volume-weighted average price (VWAP) of $2.97, the buyers will make money if YHOO is sitting north of $41.97 (strike plus VWAP) -- a new eight-year high -- at the close on Friday, Oct. 17, when the options expire. Risk, meanwhile, is capped at the initial premium paid for the calls, should YHOO -- last seen at $36.88 -- remain south of the strike through the option's lifetime.

According to data from Bloomberg, Yahoo! Inc. (NASDAQ:YHOO) calls expiring within six months are near their priciest level ever, relative to puts, as speculators wax optimistic on the Alibaba IPO. (Yahoo! owns a 24% stake in the Chinese Internet titan.) Bullish bets are definitely favored in the options pits, as the stock's 10-day call/put volume ratio on the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 4.43, indicating traders have bought to open more than four YHOO calls for every put during the past two weeks. What's more, this ratio ranks higher than 80% of comparable readings from the past year, pointing to a healthier-than-usual appetite for long calls over puts of late.


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