YELP Stock Squeezes Shorts with Earnings Beat

YELP is on track for its best day in over a year

by Patrick Martin

Published on Aug 9, 2018 at 10:00 AM

Yelp Inc (NYSE:YELP) stock is up 21.9% to trade at $46.45, after the online reviews forum reported second-quarter earnings and revenue above analyst forecasts. The company also raised its full-year guidance, citing increased advertising revenue as the catalyst behind the excellent numbers. No fewer than eight brokerage firms have chimed in with price-target hikes in response, including a boost to $57 from $53 at JPMorgan Securities. 

The rally today has YELP stock heading toward its best day since May 2016, and erasing its year-to-date deficit. The equity's big bull gap has also carried it above its 50-day and 200-day moving averages for the first time in more than two months.

A short squeeze is likely playing out in response to the stronger-than-forecast quarterly results. Short interest fell by 18.5% in the two most recent reporting periods, yet the 5.50 million shares sold short represents a healthy 8% of YELP's total available float -- and more than a week's worth of pent-up buying power, at the stock's average daily volume.

As for options traders, those targeting near-term contracts have shown a clear preference for puts. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows YELP with a 10-day put/call volume ratio of 1.34, which ranks in the elevated 72nd percentile of its annual range. An extended surge from YELP could lead to an unwinding of these bearish bets.

Already today, YELP options volume has exploded. Roughly 22,000 options have changed hands already, representing 14 times the expected intraday volume and pacing for an annual high. The most popular strike so far today is the August 45 call, which is newly in the money. 

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