Shares of Yahoo! (YHOO) are tumbling 2.5% today. Unfortunately, the fresh bout of weakness isn’t anything new for the recently resurrected Yahoo stock.
While the rest of the market has been consolidating near all-time highs, Yahoo stock has quietly descended into bear country. With today’s swoon YHOO is now 23% off its highs.
The technical view of Yahoo stock price doesn’t offer much hope either. The trend has been lower all year long. Sure the downward slog has been interrupted by the occasional rebound but they’ve all lacked the mustard to reverse the trend.
All the major moving averages on YHOO are pointing lower as well. The 20- and 50-day moving averages have been declining for months now. The 200-day moving average is just about to lose its upward tilt if the bulls don’t show up soon.
Traders looking to capitalize on additional downside will be happy to note a breakdown pattern is setting up. With today’s down day YHOO is testing a key support level at $40. A break of this level offers a low risk entry and may well kickoff the next down leg in the stock.
Despite the recent entrance into a full-fledged bear market, the volatility in Yahoo stock has remained relatively subdued. Demand for options hasn’t accelerated much keeping option premiums on the low end.
Yahoo Puts for Profits
In light of the cheap options, consider buying put options to play YHOO. Buy the Aug $41 put for $2.30.
The maximum risk is limited to the initial $2.30 debit and will be lost if Yahoo stock sits above $41 at August expiration.
The maximum reward is unlimited (up until YHOO falls to zero) so put owners should be rooting for YHOO to really get kicked in the shins over the next month.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
