Why Big Traders Are Betting Against Yahoo
It's a make-or-break moment for Yahoo shares—and someone is betting big on "break."
A large quantity of June 25-strike puts were bought for $0.30 to $0.35 on Thursday. These were done in quantities of 300 to 500 contracts, giving the traders the right to sell tens of thousands of Yahoo shares for $25 each. This is a bearish bet that Yahoo stock price will drop below $24.65, which these traders expect will happen by options expiration on June 22.
Yahoo offers personalized technology services for their clients, connecting users with the exact content they need. In turn, Yahoo sells that information to advertisers and marketers. And Yahoo is very much a company in transition. When asked about Yahoo's taste for acquisitions at the recent All Things Digital conference, Chief Financial Officer Ken Goldman remarked: "We're not afraid to make any decisions."
Goldman has an eye on the mobile market, and said Yahoo will do acquisitions "to help basically accelerate our progress … and continue to see the velocity of products in the mobile space." Yahoo recently bought Tumblr for $1.1 billion, and has a non-binding bid for Hulu, along with a slew of other bidders.
(Read More: Tumblr Will Operate Independently: Yahoo CEO)
However, despite the leadership's confidence, the 25-strike puts might still pay off.Although Yahoo has done very well over the past year, Yahoo shares have actually been in a downtrend since reaching a peak of $27.68.
The next few days will be very important for Yahoo shares. If the stock rallies now, it would show that we have simply seen a short-term correction within a larger bullish trend. However, if the price begins to drop, then the old support levels can now act as a resistance, and the future will not be bright for Yahoo stock.
On the plus side, though, that tumble could provide a tidy profit for the traders who bought these puts.