YHOO – Yahoo!, Inc. – The implementation of a short strangle on Yahoo!, Inc. today indicates one options strategist expects the firm’s shares to trade within a specified range through January 2011 expiration. Shares of the owner of the second-most popular U.S. Internet search engine earlier rallied roughly 1.1% to $15.62, but slipped in afternoon trading to remain flat at $15.45 as of 12:40 pm (ET). Yahoo’s shares increased at the start of the session on news the firm forecast annual average revenue growth of 7% to 10% from 2011 to 2013. The strangle player initiated the trade by selling 5,000 puts at the January 2011 $14 strike for a premium of $1.32 each, and by selling 5,000 calls at the higher January 2011 $17.5 strike for an average premium of $1.16 apiece. Gross premium pocketed on the trade amounts to $2.48 per contract. The options trader keeps the full premium received today as long as shares trade within the boundaries of the strike prices described through expiration day. However, the short stance taken in both call and put options expose the investor to losses should shares rally above the upper breakeven price of $19.98, or if shares slip beneath the lower breakeven point at $11.52, ahead of January 2011 expiration.
Affiliation: Interactive Brokers
Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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