Starboard Deal Entices Bold Yahoo! Inc. (YHOO) Options Trader

Yahoo! Inc. (NASDAQ:YHOO) call options are trading at an accelerated pace, after an agreement with activist hedge fund Starboard Value LP

Apr 27, 2016 at 11:16 AM
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After popping out of the gate, tech stock Yahoo! Inc. (NASDAQ:YHOO) was last seen 1.1% lower at $36.69. Wall Street is reacting to news that the company has reached a deal with activist hedge fund Starboard Value LP, agreeing to add four Starboard-approved members to its board -- including Starboard CEO Jeff Smith. The agreement comes after Starboard last month called on YHOO to completely overhaul its board. As a result, some interesting trading activity is taking place in YHOO's options pits. 

More than 39,000 YHOO call options have already traded this morning -- two times the average for this point in the day. This is due to intense interest at the stock's June 43 call, where over 22,000 contracts have traded. According to Trade-Alert, an ambitious trader bought to open 15,000 contracts at the out-of-the-money strike, looking for YHOO to jump over 17% and take out $43 before the options expire in a little less than two months. Delta on the option sits at 0.14 -- meaning it has a 14% chance of finishing in the money. 

This activity coincides with the long-term trend seen from YHOO's options traders. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock sports a 50-day call/put volume ratio of 3.65. Not only does this mean almost four calls have been bought to open for each put, but it also outranks 88% of all readings from the past year. 

Moreover, YHOO's Schaeffer's put/call volulme ratio (SOIR) stands at 0.31, revealing call open interest more than triples put open interest among the front three-months' series of options. Plus, this SOIR sits just 4 percentage points from a 12-month low, meaning short-term speculators are far more call-skewed than normal

Outside the options arena, short sellers have been fleeing from the stock. Over the last two reporting periods, short interest dropped 17% -- though these bears still control 3.5 days' worth of pent-up buying power, based on YHOO's average daily volumes. In other words, there's still a decent amount of sideline cash available that could give the shares a lift. 

The prevailing bullish backdrop makes sense, given Yahoo! Inc.'s (NASDAQ:YHOO) recent run up the charts. The shares have surged over 40% since their two-year low around $26 in February, bolstered by last week's earnings beat. In the meantime, Wall Street awaits an update on YHOO's buyout aspirations

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