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Yahoo! Inc (YHOO) Put Buyers See Red Ahead

Front-month bears hope YHOO pulls back 5% or more

by 6/6/2013 11:53 AM
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Options traders have been unusually bearish toward Yahoo! Inc. (NASDAQ:YHOO) of late. The search engine's 50-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is 0.31, which ranks in the 91st percentile of its annual range. Long story short, traders have rarely been more put-heavy toward YHOO in the past year.

That trend is continuing today, with put volume at more twice its intraday average. As it did a few days ago, most of the action centers around the June 25 put, where 94% of the nearly 8,000 contracts traded at the strike have crossed on the ask side -- meaning they were purchased. Implied volatility is up, too, suggesting that these are new positions, initiated at a volume-weighted average price (VWAP) of $0.32.

Consequently, this morning's put buyers need Yahoo! to take the journey south from its current perch of $25.91, to $24.68 (strike less VWAP), over the next two-plus weeks, in order for the trade to be profitable on expiration Friday. That's a modest move of less than 5%.

Technically, things have been a bit of a mixed bag for YHOO. The shares have added nearly 30% year-to-date, but after touching a 5-year high of $27.68 on May 15, they have lost 6.4% and are currently trading below their 10- and 20-day moving averages.

It remains to be seen whether those trendlines will guide Yahoo! Inc. (NASDAQ:YHOO) past the strike by June 21, when the options expire. Current delta of negative 0.29, or 29%, means the chances of that taking place are roughly 3-in-10. But no matter what happens, the most today's speculators have to lose is their initial net debit.


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