Sector Tailwinds Spark Bullish Betting On Yelp Inc (YELP)

Yelp Inc (NYSE:YELP) is getting a halo lift from sector peers Facebook Inc (NASDAQ:FB) and Groupon Inc (NASDAQ:GRPN)

Jul 28, 2016 at 3:22 PM
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Social media stock Yelp Inc (NYSE:YELP) is capitalizing on the positive earnings reactions for sector peers Facebook Inc (NASDAQ:FB) and Groupon Inc (NASDAQ:GRPN). At last check, YELP stock was up 4.2% at $31.57, and options traders are calling for even higher highs over the next several weeks -- a time frame that includes Yelp's own turn in the earnings confessional.

By the numbers, 8,130 call options have changed hands so far, two times what's typically seen at this point in the day and 10 times the number of put options traded. Front-month calls are in high demand, accounting for each of YELP's four most active options.

While it looks like traders are possibly buying to open the equity's August 26 and 33 calls, it appears another options trader is rolling her long August 31 calls up to the 34 strike. If this is indeed the case, the goal for each of these call buyers is for YELP to extend today's rally through front-month expiration at the close on Friday, Aug. 19, and settle above the respective strikes.

Widening the scope, today's accelerated call activity marks a change of pace in YELP's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 0.47 ranks in the 68th annual percentile. In other words, puts have been bought to open relative to calls at a faster-than-usual clip.

This skeptical stance is seen elsewhere on Wall Street, as well. Short interest, for example, accounts for a healthy 15.6% of YELP's available float -- or 4.2 times the average pace of trading. Meanwhile, 70% of covering analysts maintain a "hold" or worse recommendation.

Technically, though, YELP has rallied sharply off its mid-February three-year low of $14.53, up nearly 117% to trade at levels not seen since early December. Plus, Yelp Inc (NYSE:YELP) is scheduled to report second-quarter earnings the evening of Tuesday, Aug. 9, and the stock gapped 23.7% higher in the session following its last turn on the earnings stage. Another strong earnings reaction could shake some of the weaker bearish hands loose, possibly creating more tailwinds for YELP.

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