IB Options Brief: Yahoo!, Inc. (YHOO)

Posted May 18th, 2012 by Caitlin Duffy in Unusual Activity

Calls Active On Reports Yahoo! May Be In Talks To Sell Stake In Alibaba

YHOO ñ Yahoo!, Inc.
Shares in Yahoo!, Inc. are up better than 5.0% this morning, though not on the back of Facebookís highly anticipated IPO. YHOOís shares rose as much as 6.3% to $15.87, the highest since Valentineís Day, on reports the company is in talks to potentially sell its stake in Chinese Internet Company, Alibaba Group Holding Ltd., for an estimated $7 billion. Options traders positioning for shares to continue to rise are targeting weekly call options, perhaps on speculation a deal could be announced as early as next week.

Call buyers snapped up more than 3,100 lots at the May 25 í12 $16 strike for an average premium of $0.21 apiece and another 420 contracts at the higher $17 strike at an average premium of $0.07 each. Traders long the $16 and $17 weeklies may profit at expiration next Friday if shares in YHOO rally another 2.1% and 7.6% to top average breakeven prices of $16.21 and $17.07, respectively.

Bullish action spread to the June expiry calls as well, with more than 8,000 of the $16 strike contracts purchased for an average premium of $0.52 each. The value of the call options could certainly lose their value, however, should talks fizzle out and shares surrender the dayís gains.

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