Call Options Or Put Options On Yahoo (YHOO)?

| October 22, 2014 | 0 Comments

yahooThere’s been plenty of action in Yahoo (YHOO) lately. This week, it’s the company’s quarterly earnings causing the market to stir.

YHOO shares are currently trading at $42.47, nearly flat for the year. The stock is trading just 1% below the 52-week high of $42.90 and is now 113% above the 52-week low of $19.80.

Is this an opportunity to buy call options on YHOO because of its strong earnings? Or should you buy put options on YHOO because of declining ad revenues? 

The bulls make a convincing argument…

YHOO blew away earnings expectations on both the top and bottom lines. EPS in particular was a huge beat, coming in at $0.52 compared to expectations of $0.32.

What’s more, the company had $200 million in mobile revenue, a key growth area. YHOO expects to generate $1.2 billion in annual mobile revenue. That’s definitely good news.

And don’t forget, the company has a ton of cash from the sale of its partial stake in Alibaba (BABA). All that money gives YHOO plenty of strategic options moving forward.

But the bears have a compelling case as well… 

On the other hand, YHOO’s display ad revenue fell 5% year-over-year. Prices fell 24% from the same period last year, and it really hurt the segment.

Keep in mind, display ads have been YHOO’s core source of revenues. And it’s very tough to compete in that space with prices plunging.

Finally, YHOO’s revenue forecast is slightly below consensus. While the prior quarter’s results were good, it’s even more important for next quarter to be strong. So far, it doesn’t look like that’ll be the case.

So is it time to be bullish on YHOO due to solid profits or should you take a bearish position because the core business is fading?

If you think the bulls are right, take a look at buying the YHOO December 43 calls for around $1.75. 

If you think the bears are right, take a look at buying the YHOO December 41 puts for around $1.60.  

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.

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