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Option Brief: Yelp Inc (NYSE:YELP) will take its turn in the earnings confessional after tonight's close, and ahead of the event, option players are scooping up calls at a rate three times the intraday average. Most speculators have turned their attention to the weekly 5/2 and May series of options, sending the stock's 30-day at-the-money implied volatility (IV) up 8.0% to 90.1%. However, almost half of the day's call volume has centered on the May 60 strike, as traders bet on another earnings-induced boost, or hedge against one.
Specifically, 14,738 contracts have changed hands at this front-month call, 71% of which have done so at the ask price, hinting at buyer-driven activity. Meanwhile, IV has shot 13.4 percentage points higher and fewer than 1,900 contracts currently make up open interest here, making it safe to assume that new positions are being initiated. Although YELP has more than doubled on a year-over-year basis to trade at $56.02, 10.6% of the stock's available float is sold short. In other words, a portion of today's activity could be at the hands of short sellers hedging against any earnings-related upside.
Regardless of the motive, today's call buyers are willing to pay a pretty penny for their pre-earnings bets. Since April 16, the equity's Schaeffer's Volatility Index (SVI) has jumped to 97% from 87%, and now ranks just 4 percentage points from a 52-week peak. In other words, premium on YELP's front-month options has rarely been more expensive than it is now, historically speaking.
Looking back at the previous eight quarters, the online review forum has fallen short of analysts' bottom-line estimates five times. However, the stock has proceeded to tack on an average single-session post-earnings gain of 6.7%, including an 18.9% surge last February. For Yelp Inc's (NYSE:YELP) first quarter, consensus estimates are for a per-share loss of 6 cents -- a 2-cent improvement over the company's year-ago results.