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A trend toward Yahoo! Inc. (NASDAQ:YHOO - 15.40) calls has been developing in the options pits of late, as evidenced by data at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The stock's 10-day call/put volume ratio has climbed to 3.93, from its 50-day ratio of 3.06. Even more telling, the 10-day ratio ranks higher than 67% of similar readings taken in the past year, suggesting a growing appetite for bullish bets over bearish in recent weeks.
This disposition toward calls was continued in yesterday's session. Roughly 63,000 contracts crossed the tape, representing double the average daily volume for call options. By comparison, around 16,000 put contracts changed hands, slightly below par with what is typically expected.
Short-term speculators honed in on the weekly 15-strike call, which saw nearly 4,000 contracts trade. With the majority of the contracts crossing at the ask price, implied volatility rising 8.5%, and volume easily outstripping open interest, it's safe to assume that new bullish positions were created here on Wednesday. By buying these at-the-money calls to open, speculators are betting on YHOO to extend its recent rise, and finish above $15.43 (the strike plus the volume-weighted average price [VWAP] of $0.43) this Friday (when these weekly options expire).
This recent preference for short-term near-the-money calls could come back to haunt option players, with the stock's front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR) docked at 0.43. More specifically, heavy call open interest currently rests at the overhead September 16 strike. YHOO could encounter options-related resistance as the more than 17,000 contracts that reside here begin to unwind over the next seven trading days.
For the aforementioned weekly traders, though, the stock is currently hovering just shy of breakeven. YHOO jumped more than 1.5% higher yesterday, following reports from Dow Jones Newswires that the Internet issue is rumored to be closing the $7.6-billion sale of its stake in Alibaba Group Holding Ltd. next week. Yesterday's boost had the equity facing off with its 200-day moving average, but YHOO was unable to finish above this psychologically-significant level. The stock has not enjoyed a daily close above this trendline since Aug. 9 (Coincidentally, YHOO gapped lower the following session on Alibaba-related news).