Call Options Or Put Options On Yahoo (YHOO)?

| March 19, 2014 | 0 Comments

yahooYahoo (YHOO) is drawing attention from investors with the upcoming IPO of Alibaba.  YHOO owns 24% of Alibaba which is China’s largest e-commerce site.

YHOO shares are currently trading at $39.11.  The stock’s up 79% from the 52-week low of $21.89 and is just 6% below the 52-week high of $41.72.

Is this an opportunity to buy call options on YHOO with the upcoming IPO of Alibaba?  Or should you buy put options on YHOO because the company is relying on acquisitions for all of its growth?

The bulls make a convincing argument…

One of the primary drivers behind YHOO’s share price appreciation over the last year has been its investment in Alibaba.  Basically, Alibaba is the Amazon (AMZN) of China and is a huge presence there.

When Alibaba goes public in the near future, it could double YHOO’s cash holdings to around $10 billion.  That’s a huge chunk of change.  With that kind of cash, the company could make some significant acquisitions.

Keep in mind, it’s the acquisitions that have been fueling YHOO’s resurgence.  Just imagine what the company could do if they purchase a popular up-and-comer, say Pinterest perhaps?

But the bears have a compelling case as well… 

While making acquisition is a fine business strategy, it’s been one of the only reasons for YHOO’s recent success.  The company’s traditional business is not sustaining growth.

In other words, YHOO has to rely on other companies and businesses for its growth.  It can’t survive on its own ad revenues and premium services any longer.

There are always risks when making acquisitions.  Sometimes a company has to overpay.  Integration can be a challenge.  And, there’s no way to guarantee the new parts will remain popular with consumers or investors.

So is YHOO’s Alibaba stake a reason to be bullish on the stock, or is the company’s reliance on acquisitions a reason to be bearish?

If you think the bulls are right, take a look at buying the YHOO April $39 calls for around $1.65.

If you think the bears are right, take a look at buying the YHOO April $39 puts for around $1.50.

Yours in Profit,

Gordon Lewis

Tags: , , ,

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.

Leave a Reply

Your email address will not be published. Required fields are marked *