YHOO – Yahoo! Inc. – A number of near-term bullish transactions in Yahoo! options this morning indicate traders are positioning for the price of the underlying shares to rise ahead of November expiration. Shares of the online media company are down 2.50% at $15.84 as of 11:55 a.m. Last week Yahoo’s shares surged on speculation that AOL and several private-equity firms may be exploring the possibility of buying Yahoo. Although shares are lower this morning, it looks like some investors are using options to position for a sharp rally by expiration day next month. Some traders purchased call spreads, buying up roughly 3,000 calls at the November $16 strike for an average premium of $0.93 each, and selling about the same number of calls at the higher November $20 strike at an average premium of $0.12 apiece. The average net cost of initiating the spread amounts to $0.81 per contract. Thus, bulls are poised to profit should Yahoo’s shares reverse course and rally 6.1% over the current price of $15.84 to surpass the average breakeven point at $16.81 by expiration. Maximum potential profits of $3.19 per contract are available to call spreaders should shares surge 26.25% to trade above $20.00. A 1,100-lot December $16/$19 call spread was picked up this morning by a like-minded bullish investor positioning for shares to rise.
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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