Yahoo rally incites feeding frenzy
David Russell | [email protected]
Our Heat Seeker monitoring system has shown repeatedly bullish activity in the Internet stock, starting with the weekly 31 calls on Tuesday. Traders paid $0.32 to $0.45 with the shares down around $31. They doubled just hours later as YHOO pushed higher and have now more than quadrupled to more than $1.80!
The trades are continuing fast and furious today, pushing total volume in the company toward 360,000 contracts. Not only is that 7 times greater than average, but calls outnumber puts by a head-spinning 10-to-1 ratio.
"MASSIVE yahoo Jan 35 x 40 spread trades for about a buck," optionMONSTER co-founder Jon Najarian thundered on our premium InsideOptions Pro chat room halfway through the morning. He was referring to a huge trade expiring early next year that will earn roughly 400 percent if YHOO reaches $40 by the third Friday of 2014.
The shares were at $32.04 when the transaction hit, but pushed higher and are now up 4.82 percent to $32.85. He or she has effectively locked in $35 as an entry price and will have to exit for $40 if it reaches the top of that range. It only cost about $1 to control that $5 move. (See the discussion of vertical spreads in our Education section for more.)
YHOO appears to be entering the second phase of a monster run that began one year ago--about three months after hiring Marissa Meyer as its CEO. The rally marked an end to a bear market in a stock that had languished since the dot-com bubble broke more than a decade ago.
It paused between May and late August, consolidating on either side of $27, but now seems to have broken that resistance. The next key area looks to be the late 2005 peak of about $40--exactly the level targeted with today's call spread.
Other trades have been winners as well. Back on June 18, Heat Seeker showed buying in the January 34 calls for about $0.70. Those shot up to more than $1 a month later and are now bid at $2.36. Then on July 23, the October 29-July 30 call spread was suggested for $0.35 during tradeMONSTER's closed-door Market Action webinar. It's now worth $0.80, and will inflate to a full $1 if YHOO remains above $30 for the next 3-1/2 weeks.