Yelp Inc (YELP) Call Options Stay Hot

Yelp Inc (YELP) is failing to capitalize on M&A-related tailwinds in the social media sector

Jun 13, 2016 at 2:58 PM
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Today's LinkedIn Corp (NYSE:LNKD) buyout has been a blessing to some social media stocks. However, not every stock in the sector is advancing, including business review site Yelp Inc (NYSE:YELP). The shares were last seen 0.3% lower at $26.76, while their call options trade at double the anticipated intraday clip.

By the numbers, 3,950 YELP calls have crossed, compared to just 900 puts. The most active strike is the in-the-money June 25 call, where some traders could possibly be purchasing new positions -- expecting the social media stock will bounce back by week's end, when the front-month series expires. However, if YELP settles the week south of the strike, call buyers risk parting with the initial premium paid.

Over the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), call buying has been all the rage. YELP's 10-day call/put volume ratio registers at a top-heavy 7.90, with nearly eight calls bought to open for every put. Also, this ratio ranks just 7 percentage points from a 52-week peak.

Of course, short sellers may be initiating long calls to hedge their bearish positions. After all, nearly 16% of YELP's float is sold short, and it would take one week for shorts to buy back their bets, at the stock's typical trading volumes.

On the charts, Yelp Inc (NYSE:YELP) got a boost early last month from a well-received earnings report. However, the social media stock remains 7% lower on a year-to-date basis, and is currently contending with potential resistance at its descending 60-week moving average. Should the trendline reject the shares, a capitulation among "vanilla" option bulls could exacerbate YELP's losses.

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