Call buying is hot in Yahoo! Inc.'s (YHOO) option pits, thanks to new M&A speculation
Yahoo! Inc. (NASDAQ:YHOO) is 2% higher at $37.21 today, amid reports that Time Inc (NYSE:TIME), along with a private equity firm, could make a bid for YHOO's core Internet business. YHOO has been on a tear as investors anticipate major changes ahead, especially after activist hedge fund Starboard Value LP moved to overthrow YHOO's entire board of directors. And with the latest round of encouraging buzz, bullish option traders are ramping up their bets, with call options already crossing the tape at twice their typical intraday rate.
Jumping right in, about 26,000 YHOO calls have changed hands so far today, nearly four times the number of puts. The resulting put/call volume ratio of 0.30 sits lower than 92% of the past year's readings, pointing to a bigger-than-usual call bias.
The most active option is currently the May 40 call, where more than 6,500 contracts have traded. It looks like most of the action is of the buy-to-open variety, indicating that speculators are targeting a move north of $40 -- territory not charted since mid-2015 -- within the next six weeks or so. With a volume-weighted average price (VWAP) of $0.93, buyers of the call will profit if YHOO rises above $40.93 (strike plus VWAP) before May 20, when the back-month option expires.
And today's appetite for bullish bets merely echoes the growing trend. As traders have digested various buyout rumors, call-buying in YHOO's option pits has surged. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio ranks in the 99th percentile of its annual range, at 6.98.
Outside of the option pits, sentiment is broadly optimistic, as well. Currently 19 analysts rate YHOO a "buy" or better, compared to nine "holds" and not a "sell" on the books. Meanwhile, short sellers have been backing off -- short interest fell by about 15% during the most recent reporting period, and now accounts for just over 6% of YHOO's available float.
From a technical standpoint, YHOO has put in an impressive performance lately, adding back 42% since touching a two-year low of $26.15 in mid-February, bringing its year-to-date lead to 11.9%. And today the stock is staring down its overhead 320-day moving average -- a trendline that provided support for Yahoo! Inc. (NASDAQ:YHOO) numerous times in recent years before switching roles to resistance last summer.
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