Yahoo! Inc. (NASDAQ:YHOO) is no stranger to being in the headlines, particularly since September when talks of selling the troubled Internet company started to heat up after the company let go of CEO Carol Bartz.

Between Blackstone (NYSE:BX), Bain, Silver Lake, Alibaba, Softbank, Microsoft (NASDAQ:MSFT) and others, there seems to be a pretty good likelihood for a suitor to emerge for Yahoo!. While share prices have rallied lately due to the chatter, they are still trading well-below the $22 level where many anticipate the bidding will begin.

Technically, YHOO did hold the $14.80 level and seems poised for an upside breakout above the recent highs at $16.70. Valuations remain reasonable, so I like the risk/reward trade-off of 2 points of downside to the $14.80 level versus 5 points of upside if a takeover play emerges.

Remember, trading is all about probabilities, not certainties (unless, of course, your name is Raj Rajaratnam). That said, I think a deal may get done by June 2012, with a target (takeout) price of $22.

Based on YHOO’s current market price of $16.05 and using a target price of $22, a target date of June 1, 2012, and $1,000 of investment capital,  this is an excellent candidate for capturing some nice upside by buying a July call  (such as the YHOO July 21 Calls) or call spread, selling a July put spread or buying the stock.

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