Yelp Inc. (YELP) Option Players Predict a Quick Pullback

Yelp Inc (YELP) options are trading at twice the typical intraday clip

Jan 9, 2015 at 1:38 PM
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Amid a broad-market tailspin, business review concern Yelp Inc (NYSE:YELP) is among the elite upward movers today. The stock was last seen 4.4% higher at $56.17, thanks to a shout-out from CNBC's Jim Cramer, who said he agrees with a recent upgrade to "buy" from "neutral" at BofA-Merrill Lynch (though the brokerage firm also lowered its price target to $70 from $82). Against this backdrop, YELP options are flying off the shelves at twice the typical intraday pace.

Although calls outnumber puts by a margin of 2-to-1, the equity's January 2015 55-strike put is most active, with more than 1,700 contracts traded. It appears a healthy portion of the puts were bought to open, suggesting the buyers expect YELP to rescind its perch north of $55 within the next week, which represents the contracts' remaining shelf life.

Broadening our sentiment scope, however, we find that short-term options players haven't been more call-heavy during the past year, as the equity's Schaeffer's put/call open interest ratio (SOIR) rests at an annual low of 0.48. Echoing this, on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 2.86 stands higher than 90% of all other readings from the past year. In other words, option buyers have been scooping up bullish bets over bearish at a faster-than-usual clip during the past two weeks.

Now is an opportune time to roll the dice with YELP's short-term contracts, too. The security's near-term contracts can be had at a relative discount, as the equity's Schaeffer's Volatility Index (SVI) of 43% sits 5 percentage points from a yearly bottom. Likewise, the stock's Schaeffer's Volatility Scorecard (SVS) of 100 implies that YELP has tended to make outsized moves over the past year, relative to what the options market has priced in.

On the charts, Yelp Inc (NYSE:YELP) could run into a double-barreled wall in the $56.50 neighborhood. This region is home to the equity's descending 60-day moving average, and acted as support in October and November, but could now switch roles to serve as resistance.

Daily Chart of YELP since August 2014 with 60-Day Moving Average
 

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