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Yahoo! Inc. (YHOO) Option Buyers Roll the Dice On a Rebound

Yahoo! Inc. traders picked up long-term, round-number calls on Wednesday

by 5/8/2014 9:32 AM
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Option Brief: Yahoo! Inc. (NASDAQ:YHOO) retreated to familiar support in the $34 neighborhood yesterday, as traders digested the highly anticipated IPO filing of Alibaba Group, of which YHOO owns a stake. Long-term speculators continue to see the bullish forest for the trees, and rolled the dice on a rebound to multi-year highs over the next several months.

During the course of Wednesday's session, YHOO saw roughly 263,000 calls cross the tape -- more than double the norm, and nearly triple the number of puts exchanged. Most of the action transpired at the January 2015 40-strike call, where close to 55,000 contracts traded at a volume-weighted average price (VWAP) of $2.55. The majority of the LEAPS changed hands on the ask side, and open interest at the strike skyrocketed by more than 44,000 contracts overnight, pointing to buy-to-open activity. In fact, data from the International Securities Exchange (ISE) backs up the theory of newly bought bullish bets.

The buyers will profit if YHOO is sitting north of breakeven at $42.55 (strike plus VWAP) -- in eight-year-high territory -- at the close on Friday, Jan. 16, 2015, when the LEAPS expire. Should the stock remain south of the round-number strike through the option's lifetime, the most the buyers will lose is the initial premium paid for the calls.

As alluded to earlier, the shares of Yahoo! Inc. (NASDAQ:YHOO) are now testing support in the $33-$34 neighborhood, which has acted as a technical foothold since November. What's more, the stock's 50-week moving average has ascended into the region. This trendline halted YHOO's mid-April pullback, and could once again serve as a springboard on the charts.


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