YAhOO 's Alibaba IPO play

[HedgefundTrader2]

On Friday afternoon, I noticed an institutional type play unfolding in Yahoo call options. Somebody bought huge amounts of JAN 40 calls and shorted JAN 35 calls in approximately a 2.75 ratio. That makes its a ratio backspreads with breakeven between 34-43 on JAN 20 expiration.

If there is a momentous move in Yahoos stock that backspreads will earn nearly 5 -6 million on it. If Yahoos stock slowly inched its way up there it could be a $59,000 loss.

I have since than duplicated that strategy , it makes sense to play along this calculated strategy for Alibaba IPO on NOV 5, that could be such a catalyst for Yahoo' s stock to move. Yahoo has a 39% stake in the IPO and it will move its stock price if this hyped up IPO goes well.

So here how you too can scale into it.

BUY 11 YAHOO JAN 40 CALLS
SELL 4 YAHOO JAN 35 CALLS

Net debit = $252
B/E = 43.22 on expiration.
Theta= 9.39
Vega= 29.08
Delta= 39.


Remember the breakeven is on expiration, you are not going to hold this too long after November 5, hence your B/e can be low as 38.5 or so with that implied volatility helping your position.

There are unlimited profits after a major move. All prices as of Fridays close.

 

[FAST.AM]

Agree this is the start of the momentum up based on this IPO and we all know what happens to IPS's now days - let alone multiple China IPO's..
I picked up 1000k shares of common on Friday at the close. It was to late into the close to by Calls-.
I would like pick up deep in the money JAN calls at a higher delta and more intrinsic value.. less time decay.

 

[HedgefundTrader2]

Quote from FAST.AM:

Agree this is the start of the momentum up based on this IPO and we all know what happens to IPS's now days - let alone multiple China IPO's..
I picked up 1000k shares of common on Friday at the close. It was to late into the close to by Calls-.
I would like pick up deep in the money JAN calls at a higher delta and more intrinsic value.. less time decay.

Yahoo options may also get some IV and if that happens the backspread will benifit. Its around that time of the year when stock market becomes a sweetpot.