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Yelp Inc (YELP) Call Players Eye the Century Mark

Yelp Inc call activity occurred on both the sell and the buy side yesterday

by 2/7/2014 11:09 AM
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Yelp Inc (NYSE:YELP) soared on Thursday, after a strong fourth-quarter revenue showing and an upbeat outlook prompted a round of price-target hikes and upgrades from no fewer than 15 brokerage firms. In the stock's options pits, overall volume soared to more than four times typical levels, and calls outpaced puts by a 2-to-1 margin. In spite of this accelerated volume, the equity's 30-day, at-the-money implied volatility (IV) plunged 30.5% to 58.5% in the wake of its scheduled announcement.

The most active strike was YELP's May 105 call, where 90% of the 5,132 contracts traded did so on the bid side. This option saw the largest increase in open interest overnight, pointing to sell-to-open activity. By writing these out-of-the-money calls, the speculators expect YELP to remain south of $105 through their expiration at the close on Friday, May 16.

Meanwhile, shorter-term call players took a more traditional route. Another strike garnering attention was the stock's weekly 2/14 100-strike call, where 1,397 contracts crossed the tape -- mostly on the ask side. Open interest rose overnight, making it safe to assume that new bullish bets were initiated. Should YELP fail to take down the century mark by next Friday's close, the most the call buyers stand to lose is the initial premium paid. According to Trade-Alert, the volume-weighted average price for the calls was $0.78 apiece.

As touched upon, YELP had a record-setting day on Thursday, tacking on nearly 19% to close at $89.46, but not before tagging an all-time high of $91.49 earlier in the session. However, this positive price action is nothing new for a stock that's more than quadrupled in value year-over-year. Of note, Yelp Inc (NYSE:YELP) pulled back to its 40-day moving average last week, and bounced. According to Schaeffer's Senior Quantitative Rocky White, the five other times this has occurred, the equity has gone on to post an average 21-day return of 13.3%.

Daily Chart of YELP Since February 2013 With 40-Day Moving Average


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