2 Trades for YHOO Stock Ahead of Earnings

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Yahoo! Inc. (NASDAQ:YHOO) will release its first-quarter earnings figures after the close of trading tomorrow, and investors may be more focused on the company’s guidance than the prior quarter’s results. By the numbers, Wall Street is expecting earnings to plunge 111% from a year ago, from 38 cents to 18 cents per share. Revenue is seen slipping 2.9% of $1.1 billion.

2 Trades for YHOO Stock Ahead of Yahoo! EarningsAccording to EarningsWhisper.com, the first-quarter whisper number comes in at 20 cents, and while this is better than the consensus estimate, it is still down considerably from the same quarter last year. That said, unless Yahoo! misses by a wide margin, traders will likely be looking toward the future.

Specifically, Wall Street will be looking for more news on the spinoff of Yahoo’s Alibaba Group Holding Ltd. (NYSE:BABA) shares. When the deal was announced back in January, YHOO stock initially headed higher, before plunging as much as 20% in the following two days.

Additionally, according to Bernstein, high margins under Yahoo’s “other revenues” come to an end in the third quarter, and could negatively impact guidance.

The brokerage community doesn’t appear too concerned about Yahoo!’s future, however. According to Thomson/First Call, 25 of the 38 analysts following YHOO stock rate the shares a “buy” or better, with no “sell” ratings to be found. Additionally, the 12-month price target for YHOO rests at $58 — a hefty premium of 30% to the stock’s current price of $44.50.

Turning to the options pits, we find a modicum of caution. In fact, the put/call open interest ratios for both the April/May and weekly April 24 series of options arrive at 0.88, with calls just outnumbering puts among near-term options. Peak weekly open interest currently rests at the overhead $45 strike, totaling 3,414 contracts, while peak put open interest totals 2,782 contracts at the out-of-the-money $42 strike.

4-20-2015 YHOO
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 Overall, weekly April 24 series implieds are pricing in a potential post-earnings move of 4.8%. This places the upper bound at $46.62, while the lower bound lies at $42.38. Technically, a breakout above $46 could be big for YHOO stock, as this region has capped the shares for the better part of the past two months. Meanwhile, a decline would breach support at YHOO’s 200-day moving average, sending the stock down for a test of support at $42.

2 Trades for YHOO Stock

Call Spread: Despite the long-term concerns, the short-term outlook for YHOO stock looks solid, and any news on the spin off of the company’s BABA shares should be a boon for YHOO. As such, traders looking to jump on the bullish bandwagon might want to consider a May $45/$47 bull call spread.

At last check, this spread was offered at 67 cents, or $67 per pair of contracts. Breakeven lies at $45.67, while a maximum profit of $1.33, or $133 per pair of contracts, is possible if YHOO closes at or above $47 when May options expire.

Put Sell:  Alternately, if YHOO stock’s short-term outlook concerns you, a weekly April 24 series $42 put sell has a high probability of finishing out of the money. At last check, this option was bid at 22 cents, or $22 per contract. As long as YHOO stock closes above $42 when the weekly October options expire (at the end of this week), you retain the initial premium. However, if YHOO trades below $42 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $42 per share.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/04/2-trades-yhoo-stock-ahead-yahoo-earnings/.

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