Note: This post was written by Brian Stutland, President of Stutland Equities and a contributor to CNBC's "Options Action."
Yahoo's stockhas had a tough year— it’s down 1.5% while the S&P 500is up 13.3%. But one options trader is betting that the company has better times to look forward to. Yesterday we saw someone buy the November 17/18 call spread for a net debit of $0.12.
This is a bullish spread that returns $0.88 if Yahoo is above 18 at expiration, and only loses $0.12 if YHOO is below 17 at expiration. With YHOO closing yesterday at 16.04, this option trader is expecting the stock to appreciate 12% over the next 49 days.
There are several possible reasons for this bullishness.
First, Forbes reported yesterday that Eric Schmidt of Google said he is interested in a search deal with Yahoo. In addition, Yahoo has recently replaced its CEO and CFO in order to revitalize the company. And finally, Goldman Sachs has reinstated coverage of YHOO with a buy rating and price target of $22.
Yahoo's fortunes could be changing, but until the company gains some traction, we like the idea of playing it with low risk, high reward spreads like this one instead of simply buying the stock.
Brian Stutland is the President of Stutland Equities and a contributor to CNBC's "Options Action."
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