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As Yahoo! Inc. (NASDAQ:YHOO) nears another multi-year high, option bulls are taking a long-term approach to bet on continued upward momentum in the shares. Last week, option buyers were targeting a near-term move above the $26 level in Yahoo! shares, but today's traders have bigger dreams. Nearly half of the approximately 24,000 call contracts that have traded on YHOO today won't expire for roughly 20 months, and target the round-number $30 level.
Specifically, speculators have zeroed in on the January 2015 30-strike call, where more than 10,000 contracts have traded, nearly all at the ask price. Volume easily trumps open interest, and implied volatility is on the rise, indicating these calls were likely purchased to open for a volume-weighted average price (VWAP) of $2.15. Breakeven at expiration in 20 months is therefore set at $32.15 (strike price plus VWAP).
Although Yahoo! Inc. has not traded north of the $32 mark since November 2007, it is in the midst of a sharp uptrend. The shares -- up 1.1% today at $24.70 -- have gained nearly 60% on a year-over-year basis, and have outperformed the broader S&P 500 Index (SPX) by 17 percentage points in the last three months. Since early September, the stock has been guided higher by its 20-day and 40-day moving averages, which together have shepherded the equity to its highest territory in nearly five years.
Delta on this position currently stands at 0.39, which means two things. First -- all other factors being equal -- the option will gain $0.39 in value for every $1 advance in the stock (and lose $0.39 for every $1 YHOO drops). Secondly, the options market is currently pricing in a 39% chance that the call will be in the money by expiration.
YHOO stock has flourished under the leadership of Marissa Mayer, who assumed the role in mid-July when the shares were trading around $15.50. Following a rather controversial policy change requiring that all employees report to a physical office, Mayer extended the company's family leave policy today.