Yelp Inc (YELP) Call Options Stay Busy

Yelp Inc (YELP) is down for the day, but the stock's call options continue to trade at an accelerated clip

Dec 28, 2016 at 12:46 PM
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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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