Buying A Put Option On Yelp $YELP

| May 1, 2015 | 0 Comments

YELP optionsBuying A Put Option On Yelp $YELP

When a stock has a bad day, my first instinct is to look for a reason to buy it.  It’s normal for investors to overreact to bad news and cause a company’s shares to drop more than necessary.  Often times, you’ll see a stock which has fallen off a cliff, slowly regain ground as investors come to their senses.

However, there are other times when a sharp selloff is just the tip of the iceberg.

Take Yelp $YELP for example.

$YELP is a popular online platform for business reviews.  They are most well-known for their online restaurant and entertainment reviews.

Currently, YELP is trading at $40.06, down 22% on the day.  That’s 5% below the previous 52-week low of $42.10, and 54% from the 52-week high of $86.88.

So is now the time to buy a put option on $YELP?

As a reminder, a put option makes money when the underlying stock goes down.  Is Yelp going to continue to fall?

For a more in-depth look at $YELP, you can follow the link.

Here’s the deal…

Yelp shares are getting hammered after the company reported a big miss on earnings.  In fact, the company missed on earnings expectations, revenues expectations, and outlook.  That’s the Triple Crown for poor quarterly results.

Not to mention, Yelp’s results were so much worse than expected, the company got hit with three downgrades from analysts.  It’s one thing to have a bad quarter.  It’s an entirely different situation to do so poorly that analysts decide to jump ship.

The company has seen new users to its site decline rapidly.  Without a growing user base, Yelp doesn’t have a lot to offer businesses.  The company is already dealing with credibility issues as it is.

Here’s the chart of Yelp:

put option buying opportunity, a chart of $YELP

As you can see above, the stock got hammered after the awful quarterly results.  The stock price has plunged below the 50-day moving average and is setting new 52-week lows.

Now could be a great time to buy a $YELP put option

$YELP is in trouble, and doesn’t look to be in for a quick recovery.  A bad quarter, a poor outlook, and multiple analyst downgrades all suggest the stock is going to struggle to find new buyers for a while.

As such, buying a put is in order.  The May (15th) 40 puts are trading around $1.25 right now.  That’s a reasonable price to pay given the stock’s downside potential.  There are a little over two weeks left until expiration.

Yours in Profit,

Gordon Lewis

Note: Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com.  You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.

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Category: Call Or Put Options?

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.

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