Option Trading Idea on YHOO

H

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.
 
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.
 
Quote from atticus:

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.
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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.
 
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.
 
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.
 
Quote from newwurldmn:
..................blah blah blah..................I think..................blah blah blah..................I bet..................blah blah blah..................I think..................blah blah blah..................It is probably..................blah blah blah..................
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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
 
Quote from ForexForex:

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




---------------------------------
I put the PIKER in EliteTrader
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WTF does this mean?
 
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