Yelp Inc. (YELP) Bulls Look to Profit Off Google's Legal Troubles

Google Inc's (GOOGL) downfall could be Yelp Inc's (YELP) gain

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Published on Apr 15, 2015 at 11:16 AM
Updated on Apr 20, 2015 at 5:32 PM

Yelp Inc (NYSE:YELP) is gaining today, after BofA-Merrill Lynch noted the stock could possibly benefit from Google Inc's (NASDAQ:GOOGL) legal woes. In the options pits, bullish betting has picked up, with calls crossing at five times what's normally seen at this point in the day. In fact, nine of YELP's 10 most active contracts are calls.

Today's bulls are eying short-term profits, with the April 48, 49, and 50 calls all seeing possible buy-to-open activity. Speculators are hoping for extended gains above these strikes by the close this Friday, when front-month options cease trading.

YELP isn't used to this positive attention. For instance, during the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity has amassed a put/call volume ratio of 1.00 -- higher than 89% of all readings from the past year. In short, put buying has been more popular than normal of late, compared to call buying.

Also, many traders are selling the stock short, as short interest represents almost 24% of YELP's float. Elsewhere, some analysts are unsure of the shares, with nine brokerage firms maintaining "hold" or worse opinions -- though the equity still sports 18 "buy" or better recommendations.

Yelp Inc (NYSE:YELP) has earned this onslaught of pessimism by lagging behind the S&P 500 Index (SPX) by nearly 11 percentage points during the past three months. Now, the shares are running into their 20-week moving average, which thwarted their last two breakout attempts. Should YELP resume its longer-term downtrend, a round of downgrades could exacerbate selling pressure.

Weekly Chart of YELP since August 2014 with 20-Week Moving Average

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