Call Options Or Put Options On YHOO?

| April 4, 2012 | 0 Comments

Yahoo! (YHOO) is firing 2,000 employees as part of a plan to restructure.

And guess what?

The bulls and the bears are both buzzing about it.  And for good reason…

YHOO Opions

As you can see, Yahoo! never recovered after the 2008 market meltdown.  It’s just fumbling along between $10 and $19.

No wonder everyone’s chopping at the bit… neither the bulls nor the bears are making any money on YHOO while it’s stuck in neutral.

The good news is Yahoo! could be on the verge of breakout.

Is now the time to buy call options on YHOO as it soars higher?  Or should you buy puts on YHOO as it falls off a cliff?

The bulls make a convincing argument…

They’re quick to point out that Yahoo! is a great takeover candidate.  The parts of YHOO may be worth more separately than they are together.

Selling the entire company, or pieces of the company, could unlock shareholder value and send the stock soaring higher.

And there’s still potential for Yahoo! to turn things around.  They could still survive and even thrive without being sold.

The 2,000 job cuts Yahoo! announced today are a step in the right direction.  The 14% reduction in workforce will save the company about $375 million every year.

My point is… investors should love a smaller and more profitable YHOO.  And even if the current management team is unsuccessful, there are activist investors campaigning for major changes to unlock shareholder value.

But the bears have a compelling case as well… 

The bears simply point to the companies failed leadership.  They’ve had five CEOs in five years.  And none of them have been able to turn things around.

What’s more, YHOO’s steadily losing ground to competitors.  It’s gone from first to third in US display advertising revenue.  And they’ve fallen from second to third in internet search.

As a result, management has guided below Wall Street estimates 13 out of the last 21 quarters.

Simply put, Yahoo! has been a huge embarrassing failure.

If you think YHOO will be sold or their turnaround will be successful, take a look at buying the YHOO October 2012 $16 Calls for around $1.05.

If you think YHOO is dead money, take a look at buying the YHOO October 2012 $14 Puts for around $0.97.

Good Investing,

Corey Williams

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Category: Call Or Put Options?

About the Author ()

A former banking executive, Corey Williams is the Chief Options Strategist and co-editor of our well-known daily newsletter, Options Trading Research. Corey’s extensive experience with options goes all the way back to his days in corporate finance. It was this decade in banking where Corey discovered the most important skill an options trader can have– the ability to analyze a company or sector to determine its likely future direction. And now he’s brought this background, experience and love of options to Options Trading Research, the unique daily e-letter devoted exclusively to helping individual investors profit from the very lucrative options market.