The former king of prime-time Internet, Yahoo (YHOO) will step into the earnings confessional after the close of trading Tuesday night. The consensus is currently looking for a profit of 37 cents per share, though the company’s whisper number arrives 4 cents higher at 41 cents per share.
Opinions appear to be mixed concerning Yahoo stock. For instance, the shares have attracted 15 “buys” compared to 18 “holds.” There are no “sell” ratings. Meanwhile, the 12-month consensus price target of $42 per share rests modest 28% above the stock’s current price range.
Options traders, however, appear less enthused about YHOO stock prospects, especially over the short-term. Specifically, YHOO’s put/call open interest ratio for the April/May series arrives at 0.69, but this ratio rises to a reading of 0.80 in the soon-to-expire monthly April options series.
Drilling down, we find that peak call open interest totals 49,331 contracts at the April $40 strike, while another 45,343 contracts reside at the overhead April $35 strike. Peak put open interest, meanwhile, totals 49,117 contracts at the in-the-money April $35 strike, with another 48,043 contracts open at the April $34 strike.
Click to Enlarge Overall, options traders are expecting a sizable post-earnings move out of YHOO stock, with April implieds forecasting a potential move of about 7.7%. The upper bound for this move lies at $35.54, while the lower bound rests at $30.46. These levels coincide with long-term support at $30, and former support (which may now act as technical resistance) at $35.
YHOO stock is currently oversold, and could be due for a technical bounce. Furthermore, despite struggling ad revenue, Yahoo is still riding high on its 24% stake in Chinese search engine and Internet company Alibaba. Alibaba is looking to eventually launch a public offering in the U.S., and any news of this could provide a considerable boost for YHOO stock.
Options Trade for YHOO Stock
As such, traders looking to position themselves ahead of Yahoo earnings might want to consider a May 32/35 bull call spread.
At last check, this spread was offered at $1.32, or $132 per pair of contracts. Breakeven lies at $33.32, while a maximum profit of $1.68, or $168 per pair of contracts, is possible if YHOO stock closes at or above $35 when May options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.