YHOO – Yahoo!, Inc. – A couple of different bullish options strategies initiated on the online media company this morning indicate some investors expect Yahoo’s shares to rebound by expiration in January 2011. The Sunnyvale, CA-based company’s shares increased as much as 1.92% to secure an intraday high of $13.79 as of 12:30 pm ET. Plain-vanilla call buyers itching for a sharp rally in the price of the underlying stock purchased approximately 2,000 lots at the January 2011 $15 strike for an average premium of $0.61 each. Investors long the calls make money if Yahoo’s shares surge 13.2% over the current price of $13.79 to exceed the average breakeven point at $15.61 by expiration day next year. Another optimistic options investor employed a different tactic. It looks like this trader established a bullish risk reversal, selling 5,000 puts at the January 2011 $12.5 strike for an average premium of $0.635 each in order to purchase the same number of January 2011 $17.5 strike calls at an average premium of $0.18 apiece. The trader pockets an average net credit of $0.455 per contract on the transaction, and keeps the full amount as long as Yahoo’s shares exceed $12.50 through expiration day. Additional profits start to accumulate should the online media firm’s shares jump 26.9% to trade above the effective breakeven price of $17.50 by January 2011 expiration day. We note that while the transaction looks bullish, open interest at all strikes described is sufficient to cover today’s volume many times over. Thus, the activity could potentially be the work of an investor closing out, adding volume to or subtracting volume from previously established positions on the stock.
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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