We’ve opened a new bearish trade on Yahoo! (YHOO). YHOO hitched its wagon to Alibaba (BABA) many years ago and, for a while, that wagon was a strong bullish driver for YHOO. Unfortunately, that is no longer the case, and YHOO has been forced to try and make an argument for a bullish valuation on its own merits — which are not all that great.

YHOO owns 384 million shares of BABA that it is spinning off into a separate entity in the hopes of avoiding a huge capital gains tax bill on the shares. Unfortunately, the IRS has refused to issue a private letter ruling on the tax ramifications of the spinoff, which has many investors concerned that YHOO will have to fork over a much larger tax payment than management has been anticipating. Plus, BABA has been losing value all on its own. The stock dropped after the expiration of the lock-up period on 63% of its shares on Saturday, Sept. 19, and it continues to be weighed down by uncertainty in the Chinese economy.

With an earnings announcement scheduled for Oct. 20, after the market closes, we anticipate YHOO shares will drop back toward $30 and that implied volatility levels will continue to rise.

‘Buy to open’ the YHOO November 30 Puts (YHOO151120P00030000) for a maximum price of $0.85.

We rarely use stop losses and instead rely on the technical indicators in a stock’s chart to tell us when to take profits in the YHOO options or cut our losses.

You can learn more about identifying price patterns and using them to project how far you think a stock is going to move in our Advanced Technical Analysis Program.

InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next SlingShot Trader trade and get 1 free month today by clicking here.