Call Options Or Put Options On Yahoo (YHOO)?

| July 17, 2013 | 0 Comments

yahooYahoo (YHOO) provides search, content, and communications tools on the Web and mobile devices.  We’ve probably all used Yahoo at one time or another – and the Yahoo! Homepage is still the most popular site on the Internet.

YHOO is currently trading for $26.88.  The stock’s up more than 70% over the last year.  The shares are 84% above the 52-week low of $14.59 and are just 3% below the 52-week high of $27.68.

Is this an opportunity to buy call options on YHOO with the company’s quarterly earnings surprising to the upside?  Or should you buy put options on YHOO with revenues falling short of expectations?

The bulls make a convincing argument…

YHOO continues to be one of the most popular sites on the Internet.  And, the company’s turnaround has been substantial since CEO Marissa Mayer took over.

Yesterday, the company released earnings and profits were up a stellar 46% year-over-year.  The $0.35 per share earnings was well above the consensus estimate of $0.30.

What’s more, the company’s 23.5% stake in Alibaba is paying huge dividends.  Alibaba’s revenues grew 71% from last year, while profits surged by 203%. 

Finally, the company’s global daily average page views grew year-over-year after being in decline.  Mayer believes a turnaround in traffic growth on that scale is unprecedented – and clearly a positive sign for the company.

But the bears have a compelling case as well… 

On the flip side, YHOO’s quarterly revenues dropped 7% from last year’s same period.  That’s a big disappointment for a company in the midst of a turnaround.  Plus, the company lowered revenue guidance as well.

Moreover, the US online advertising market grew by 15% this past year.  That means YHOO is substantially underperforming against the market – in the company’s core business.

In fact, YHOO’s display-ad revenue dropped 12% – and it represents 40% of the company’s revenues.  That’s definitely a negative development.

So is YHOO’s big earnings beat enough to overcome the drop in revenues?

If you think the bulls are right, take a look at buying the YHOO August $27.00 calls for around $1.00.

If you think the bears are right, take a look at buying the YHOO August $26.00 puts for around $0.75.

Yours in Profit,

Gordon Lewis

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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.