Call Players Jump On Yahoo! Inc. (YHOO) Amid BABA Buzz

Alibaba Group Holding Ltd (BABA) buyout buzz has sparked a mad dash for Yahoo! Inc. (YHOO) calls

Oct 16, 2015 at 3:08 PM
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After jumping out of the gate, Yahoo! Inc. (NASDAQ:YHOO) has turned lower, last seen 0.7% below breakeven at $33.26. Traders are likely responding to news that Alibaba Group Holding Ltd (NYSE:BABA) -- of which YHOO owns a substantial stake -- offered to buy the rest of Chinese video streaming site Youku Tudou (ADR) (NYSE:YOKU). While enthusiasm on the Street has cooled somewhat, call players have remained active. 

By the numbers, YHOO call volume is at 1.7 times the amount typically seen at this point in the day, with the contracts accounting for nine of today's 10 most active strikes. It looks like one group of traders is betting on extended gains from the media stock by possibly buying to open the November 35 call. These bullish speculators will profit if YHOO tops $35 by the close on Friday, Nov. 20, when the soon-to-be front-month series expires. 

This penchant for call buying is unlike YHOO speculators. According to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security currently sports a 10-day put/call volume ratio of 1.21. Not only does this mean puts have been bought to open at a faster pace than calls recently, but this ratio is only 1 percentage point from an annual bearish peak. 

Skepticism has ramped up outside the option pits, as well. Specifically, short interest on YHOO jumped roughly 28% during the two most recent reporting periods. 

When looking at the charts, it's not hard to see where these bears are coming from. Yahoo! Inc. (NASDAQ:YHOO) has underperformed the S&P 500 Index (SPX) by more than 11 percentage points during the past three months, touching a two-year low of $27.20 on Sept. 28. Looking ahead, the company is slated to report earnings next Tuesday evening.

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