Options Action

How Traders Can Triple Their Money on Yahoo: Stutland

The Yahoo logo is displayed in front of the Yahoo headqarters in Sunnyvale, California.
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Yahoo shares jumped 3 percent on Friday, as traders responded to news that Yahoo's Marissa Mayer is pulling a play out of Google's book and eliminating unsuccessful products en-masse.

Yahoo announced that it would eliminate its BlackBerry app, along with Yahoo App Search, Yahoo Sports IQ, Yahoo Clues, Yahoo Message Boards, and Yahoo Updates API. This new policy comes in conjunction with a change in Yahoo's description of itself in its 10-K. The old description as a "premier digital media company" has been replaced with "a global technology company focused on making the world's daily habits inspiring and entertaining."

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Traders liked the new "less is more" policy out of Yahoo, and the bullish stock trading spilled over into the options market, where over five calls traded for every put.

One of the biggest trades of the day was the purchase of 2,500 July 24/26 call spreads for $0.45, which was done with the stock at $22.00. This is a bullish bet that Yahoo will be above $24.45 at July expiration, which would be a 11 percent increase. The risk in this trade is limited to $0.45, but the reward is also limited to $1.55, for a maximum 344 percent return on risk should Yahoo close above $26 on expiration Friday. Monday morning, shares were trading higher on news of an upgrade to "overweight" at Barclays, which says that the company's interests in Yahoo Japan and Alibaba Group are undervalued.

Since Marissa Mayer took the helm at Yahoo, the company has been seen in a new light by investors, traders, and analysts alike. Although some of Mayer's moves have been controversial, she is taking action and making the hard decisions that she thinks will position the company for long-term growth.

This trade is a bet that the stock's recent momentum will continue through the company's next two earnings announcements. These should give traders an indication as the whether Mayer's new policies are working, and whether value at Yahoo Japan and Alibaba is being unlocked and properly valued.

Disclosures: None to report.

Brian Stutland is Managing Member of Stutland Equities and a contributor to CNBC's "Options Action."