Bullish activity in Yahoo (YHOO) options that expire one week from today suggests some options traders are positioning for the price of the underlying to extend gains in the very near term. The stock rose more than 2.0% to $39.38 this morning and is up better than 5% for the week.
Of those contracts that expire 07Mar’14, the most traded YHOO options by volume are the $41 strike calls, with around 6,000 lots in play against zero open interest. Time and sales data indicates most of the volume was purchased for an average premium of $0.17 each. These upside calls may be profitable at expiration next week in the event that Yahoo’s shares rally another 5.0% over the current price of $39.12 to exceed the breakeven price of $41.17. Traders targeted a range of striking prices in the weekly options, exchanging 2,000 of the $42 strike calls and buying most of the contracts at a premium of $0.10 apiece. These far out of the money calls make money at expiration if shares in Yahoo surge 7.5% to top the breakeven price of $42.10, though of course the options need not be held to expiration to be profitable. A rally to new 52-week highs for the stock early in the upcoming trading week could push the value of the $42 strike calls up substantially higher than the $0.10 premium paid for the contracts this morning. Finally, nearer to the money weekly calls attracted buyers as well, with the 07Mar’14 $39.5 and $40 changing hands on Friday morning.