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Yahoo! Shareholders Protect Recent Profits

Option traders showed a fondness for YHOO's November 17-strike put yesterday

by 11/13/2012 10:25 AM
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Calls have been preferred on Yahoo! Inc. (NASDAQ:YHOO - 17.70) in recent weeks, per data at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). During the course of the last 10 sessions, traders have bought to open nearly seven calls for every put. Plus, this call/put volume ratio of 6.60 ranks in the 80th percentile of its annual range, suggesting bullish bets have been scooped up over bearish at a faster-than-usual clip in the past two weeks.

For a stock that's added more than 21% since early September, this bullish bias isn't surprising. Additionally, over the course of the past 60 sessions, YHOO has outperformed the broader S&P 500 Index (SPX) by nearly 20 percentage points, on a relative-strength basis. In fact, YHOO jumped to a new annual high of $17.71 right out of the gate today.

This penchant for calls was continued in yesterday's session, as well. Around 34,000 call contracts crossed the tape, nearly double the number of puts that traded. However, it was the November 17-strike put which saw the most action on the day. Of the roughly 13,400 contracts that changed hands here, 94% did so at the ask price, and open interest rose overnight -- two indications of buy-to-open activity. By initiating these long puts, traders will profit with each step south of $16.97 (the strike minus the volume-weighted average price of $0.03) YHOO takes through the end of the week, representing a 4.2% slide from the equity's current perch.

Given the stock's recent display of technical tenacity, Monday's activity at the near-the-money November 17-strike put may simply represent shareholders picking up protective puts to guard against a potential pullback. As it turns out, the stock's Relative Strength Index (RSI) is currently docked at an elevated 72, suggesting YHOO has entered overbought territory and could see a brief period of consolidation in the near term.

However, the equity is bucking the bearish bias in today's session, following last night's announcement the company will revamp its Yahoo Mail service beginning in December. At last check, the stock was up more than 1% to hover just shy of the previously mentioned milestone.


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