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Takeover Rumors Spark Yahoo! Options Action

New reports that Yahoo! may be a takeout target has created opportunities in the options market.

The exterior of Yahoo! corporate headquarters in Santa Clara, California.
Getty Images
The exterior of Yahoo! corporate headquarters in Santa Clara, California.

Demand is up for call optionsover puts, and volatility is skewing to the upside.

Traders are "clearly playing an M&A story," says Steve Sosnick, equity risk manager at Timber Hills.

October at-the-money or near-the-money puts are trading at a discount to calls, a reverse of what is seen normally in a market where the supply of calls exceeds the supply of puts.

Implied volatility for October at-the-money calls is around 65 percent, near the very high of its recent trading range. Most actively traded strikes today included September $15, $16 and even $17 calls expiring Friday.

In October, $16 calls were the most actively traded strike with premiums at $0.93 when shares were trading at $15.28.

Market watchers are pointing to an article in The Wall Street Journalas the catalyst for today's activity in the stock. Called an "unsurprising development" by Sosnick, it is part of the ongoing confusion surrounding the future of the company. When there is "blood in the waters, rumors naturally follow," he says.

According to proprietary data from Interactive Brokers, net put/call options volume for the past two days has been above normal at approximately 200,000 shares.

Volume of the underlying shares is above normal as well, trading approximately 58 million shares Thursday, or about 18 percent above its 10-day average volume.

Questions? Comments? Email us at marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

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