Rare Vote of Confidence Lifts Yelp Stock

Options activity has remained very bearish on Yelp

by Josh Selway

Published on Feb 4, 2019 at 10:16 AM
Updated on Jun 24, 2020 at 10:16 AM

Yelp Inc (NYSE:YELP) is trading up 2.5% at $38.10 after Goldman Sachs initiated coverage on the review specialist with a "buy" rating and $42 price target. This has YELP stock set for a second consecutive close above the 80-day moving average following two months of trading below the trendline, while the 20-day moving average has been strong support in recent weeks.

Looking back further, the security has been pushing higher since bottoming at $29.33 in early November, but sentiment among options traders has been very bearish. For example, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day put/call volume ratio of 2.55, which ranks in the 94th annual percentile. In other words, put buying has been unusually popular in the last 10 days.

Anyone speculating on Yelp should know that the options market has consistently overpriced volatility expectations during the past year. This is according to the equity's Schaeffer's Volatility Scorecard (SVS) of 14 out of a possible 100.

Meanwhile, short interest remains elevated on YELP. Going by average daily trading volumes, short sellers control 6.3 days' worth of buying power. Most other analysts are skeptical, as well, with 17 of 22 in coverage handing out "hold" or "strong sell" recommendations.

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