Yelp Inc (YELP): Takeover Chatter Sparks Bullish Betting

Buyout buzz continues to swirl around Yelp Inc (NYSE:YELP)

Sep 16, 2015 at 2:15 PM
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Yelp Inc (NYSE:YELP) was up nearly 4% at its session high, amid unconfirmed buyout buzz, but has since pared its lead to 0.9% to sit at $25.54. This isn't the first time takeover rumors have helped lift the stock, and the positive price action comes as a welcome development for the long-time laggard. This jump has certainly encouraged option traders, with calls trading at three times what's typically seen at this point in the day -- and outpacing puts by a 10-to-1 margin.

Most active is YELP's September 26 and weekly 9/25 27-strike calls, where it seems safe to assume new positions are being purchased. The volume-weighted average price (VWAP) for the front-month option -- which expires at this Friday's close -- is $0.43, while the VWAP for the weekly call is $0.51. Based on these average entry prices, the respective breakeven marks for the call buyers is $26.43 (strike plus VWAP) and $27.51.

Widening the sentiment scope reveals calls have been popular among the short-term options crowd. Specifically, YELP's Schaeffer's put/call open interest ratio (SOIR) of 0.62 ranks in the 35th annual percentile.

Drilling down on the front-month series, peak call open interest is found at the September 27 strike, where 5,836 contracts reside. However, according to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the majority of options were sold to open here in recent months. In other words, traders are expecting YELP to remain south of the strike through this Friday's close.

Outside of the options pits, sentiment is tilted toward the skeptical side of the fence -- although it appears some are starting to shift sides. Among the 28 analysts covering the shares, 21 maintain a "hold" or worse recommendation. Additionally, although short interest declined 14.9% in the last two reporting periods, it still accounts for 16.2% of YELP's float.

As touched upon, this pessimism isn't too surprising, given Yelp Inc's (NYSE:YELP) long-term technical backdrop. Year-to-date, the shares have shed more than half their value. However, the equity has made some strides since bottoming at a two-year low of $20.50 on Aug. 24 -- up nearly 23%.

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