Yahoo's earnings left traders with mixed emotions.
On one hand, the quarterly results that were reported after Tuesday's close were less than stellar. Revenue was basically flat, earnings before interest, taxes and amortization were up slightly, operating income was down 3 percent, and earning per share rose $0.11 year-over-year.
Yahoo's focus has been on updating their main products like their home page and mail, but these earnings show that this has yet to translate into real growth for the company.
(Read More: Yahoo Earnings Beat, but Revenue Disappoints)
On the other hand, Tuesday's numbers were good enough to lead Bank of America to upgrade the stock from "neutral" to "buy," which has helped Yahoo shares outperform the market in Wednesday's selloff.
Option trading has been focused in the out-of-the-money puts and calls, both of which are being bought. This suggests that traders are split on Yahoo's next direction, but agree that we will see a sizable move when one occurs.
The biggest trade of the day was the purchase of 2,500 June 23-strike puts for $0.73. This is a bet that the stock's next move will be to the downside.
The main theme in the bear camp is that the company's turnaround attempt is too little, too late. Yahoo's updates across its product line have been successful in increasing user engagement, which is a major first step, but that engagement has yet to be fully monetized.
The glowing optimism surrounding CEO Marissa Meyer and the turnaround story that has rallied the stock all year could now be fading, which, combined with the potential for a weak broad market, could send the stock lower into June.
(Read More: Honeymoon Ending, What's Next for Marissa Mayer?)
This trade will profit if the stock is at $22.27, or 6.5 percent lower from where it was when put on. This risk is that the stock continues to get bid on any weakness, on expectations that an Alibaba IPO will provide investors with a payday. This seems to be the primary reason that analysts continue to give the stock "buy" ratings, and should not be overlooked as a near-term catalyst for Yahoo.
—Brian Stutland is Managing Member of Stutland Equities and a contributor to CNBC's "Options Action."