Yelp Inc (YELP) is down for the day, but the stock's call options continue to trade at an accelerated clip
After an initial run at two-month highs this morning, Yelp Inc (NYSE:YELP) shares have since moved lower -- down 2.2% at $39.06 -- yet call players continue to bombard the stock, which has been a favorite target of the M&A rumor mill of late. However, in the wake of the stock's December rally -- YELP has added over 5% month-to-date -- some of the recent call activity may consist of short sellers hedging or, in today's case, option traders betting on a short-term ceiling.
Yesterday, YELP saw accelerated call volume, with calls crossing the line at five times their average daily rate, including one block of 3,000 weekly 12/30 42-strike calls bought to open for 25 cents each, or a total investment of $75,000 ($0.25 x 100 shares per contract x 3,000 contracts). That momentum hasn't slowed today, with YELP options again trading at five times their average intraday volume, with calls outnumbering puts 7,300 to 2,108. The weekly 12/30 42-strike call is also today's most active option, with possible sell-to-open action detected. The writers of these calls are betting on YELP to remain south of $42 through the end of the week.
Widening the scope, the recent interest in call options isn't out of the norm for YELP. YELP's 50-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 3.74 sits higher than 95% of all other readings from the past 12 months, indicating a stronger-than-usual bullish bias over the past 10 weeks of trading. In addition, YELP's Schaeffer's put/call open interest ratio (SOIR) of 0.50 sits in the call-skewed 24th percentile of its annual range, indicating a bigger-than-usual call skew among near-term options traders.
As alluded to earlier, some of that recent call buying -- particularly at out-of-the-money strikes -- could be attributable to shorts hedging their bets. While short interest fell nearly 25% over the last reporting period, it still accounts for 10% of YELP's float, which would take nearly a week of trading to cover, at the stock's average daily volume.
Technically speaking, Yelp Inc (NYSE:YELP) shares recently bounced off the $32 mark -- a former area of resistance -- and are up more than 170% since hitting their February lows. The aforementioned $42 level has been a thorn in the stock's side, though, halting the equity's rally attempts in late September and early October.
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