Yahoo stands to benefit from Alibaba's IPO in September, but
traders aren't waiting to get long.
optionMONSTER's Heat Seeker monitoring program yesterday detected
the purchase of 20,000 September 40 calls for $0.75 and the sale of
an equal number of September 45 calls for $0.20. Volume surpassed
the previous open interest in each strike, which indicates that new
money was put to work.
locks in the price where the Internet stock can be bought, while
writing them obligates the investor to sell shares if they reach a
certain level. Combining the two strategies controls the spread
between the two prices and can result in significant leverage. (See
In the case of yesterday's trade, known as a
, the investor paid $0.55 and will collect $5 if YHOO closes at $45
or higher on expiration in mid-September. That would be an 809
percent profit from a 25 percent move in the share price.
YHOO rose 2.58 percent to $36.60 yesterday and has been
consolidating in a tight range since April. Although the company's
last quarterly results missed estimates, the market is focused on
its 24 percent stake in Chinese e-commerce giant Alibaba.
The initial public offering is scheduled for sometime in September,
after many investors return from summer vacation. A strong IPO
would likely drive YHOO higher.
Overall option volume in Yahoo was triple its daily average, with
calls accounting for a bullish 74 percent of the total.
(A version of this post appeared on
Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.