Yahoo shares are having a great week after the company strongly beat its third-quarter earnings expectations and on the revenue side. But one trader appears to believe that Yahoo's upside will be limited in the next month.
As Yahoo options traded twice their average daily volume on Tuesday, one trader sold 10,000 November 50-strike calls for 50 cents per share. Options experts say this trade was likely done against a long stock position, meaning that the firm will squeeze an extra 50 cent per share of yield out of Yahoo shares through the November expiration. However, the catch is that this trader is now compelled to sell those Yahoo shares for $50 at November expiration, even if they rise above that level—meaning that the trader risks missing out on upside gains.