Option Trading Idea on YHOO

Discussion in 'Options' started by hajimow, Sep 29, 2011.

  1. hajimow


    I believe YHOO will be bought soon. This rumor has been very strong and even YHOO has confirmed it that there are multiple potential buyers. Based on that I recommend the following option trade:

    For January 2012 which gives you 4 months of time so if something happens, you will catch it. You will benefit from a normal market rise too.

    Sell PUT 14 for Jan 2012 and buy Call 15 for the same month with a credit. So far you have done a risk riversal trade with credit. When YHOO moves up, you can sell Call 20 for Jan 2012 so you will have a naked PUT with a bullish call spread. Even if YHOO stays above 14 by Jan 2012 you will make good money and if a buyout happens and the price for sure will be over $20, you will earn $500 plus the credit that you get for each pair.
    Margin needed to sell naked PUT 14 is also very low. It will be $250 for a contract so you can do 40 contracts with $10000 and you can make over $20000 in 4 months.
  2. You're essentially long stock here, so why take a $0.33 credit for a 15 strike over simply buying shares outright at 14?

    14.00 b/e vs. a 14.67 b/e with the R/R.
  3. hajimow


    That is also good idea. I have a combination of shares and options. Option strategy needs less margin and your cost would be $14 -0.33 compared to $14 but if you buy the stock, you will make more if the stock goes to $14.99 compared to what you get in option trade. Nothing is free and there is no holy grail. Every benefit is for a reason.
  4. hajimow


    in sympathy with BIDU , YHOO dropped a lot yesterday but strangely in today's down market it erased 2% drop of the day and now it is edging to positive territory. Interesting. I believe it is a buy for many reasons.
    1- short term correction
    2- long term speculation

    basically I don't see YHOO's risk is more than the general market.
  5. newwurldmn


    The question is what you value the international business at. If you believe the claims it's worth 12-13 dollars a share then you get a good US brand name for nothing. And one day the stock will trade higher. If you believe that it's not then it's not a good buy.

    I think it's better than BIDU: chinese internet company dominated by retail investors who see that the stock only went up. I bet they have never even been to BIDU.

    I think that this international business does provide some support. It is probably a good name for Atticus's dispersion as 3M vol is like 60.

  6. Too much "I think", "I bet", "It is probably". When it comes to options you gotta be sure. NO GUESSING.

    I put the ELITE in EliteTrader
  7. newwurldmn


    I have my YHOO trade on. And unlike you, it's not some pansy one lot where I will go on bragging to people about how I made $40.
  8. hajimow


  9. WTF does this mean?
  10. When would Yahoo trade at 6.6? (20% of 33 which is the price stupid jerry refused from microsoft).
    #10     Sep 30, 2011