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Option Brief: Yahoo! Inc. (NASDAQ:YHOO) is 3.5% higher at $39.57, and option bettors are gambling on the stock to surmount $40 by the end of the week. In afternoon action, the Internet issue has seen roughly 67,000 calls change hands -- more than double its average intraday volume, and around three times the number of puts exchanged, marking a change of pace among option buyers.
The security's 30-day at-the-money implied volatility (IV) is 4.1% higher at 35.7%, reflecting escalating demand for YHOO's shorter-term contracts. Most active so far today is the weekly 3/7 40-strike call, where close to 12,500 contracts have crossed the tape. Eighty-five percent of the calls traded on the ask side, IV is trending higher, and volume has surpassed open interest at the strike -- all signs of newly bought bullish bets.
By purchasing the calls to open at a volume-weighted average price (VWAP) of $0.40, the buyers expect Yahoo! Inc. (NASDAQ:YHOO) shares to climb north of $40.40 (strike plus VWAP) by Friday's closing bell, when the options expire. In the wake of the stock's ascent, delta for the calls has more than doubled, to 0.42 from 0.17, implying a roughly 42% chance of the contracts finishing in the money at expiration. However, risk is limited to the initial premium paid for the calls, should YHOO remain south of the round-number strike through Friday's close.