Does YHOO Option Action Signal A Bottom?

Today
we are watching with interest
the dollar-weighted action in our Internet basket.

America Online

(
AOL |
Quote |
Chart |
News |
PowerRating)
is seeing some significant call buying, particularly
in the January 40 — 55 strikes. For that reason, the calls are seeing 3-to-1
money flows vs. the dollar-weighted put volume.



Also,
despite the negatives associated with the Yahoo! Inc.

(
YHOO |
Quote |
Chart |
News |
PowerRating)
announcements
last night, we’re seeing dollar-weighted money flowing into call and puts on a
nearly equal basis. That might not seem as extraordinary to those of you that
don’t track such money movement as we do, but for the last two months,
dollar-weighted puts have outpaced calls by up to 200-to-1.


If
indeed the action signals a bottom in YHOO, some traders may consider the APR
25 — 35 Bull-Call Spread
. Our numbers show they could buy the APR 25 calls for
6 1/4 and sell the APR 35s for 3, or a debit of just 3 1/4. The spread is
intrinsically (in-the-money) worth 1 1/4,as the stock is trading for 26 1/4 as of
11:00 am CST. Thus, they’re only paying $2 in time premium. Paying 3 1/4 for a
10-point call spread in one of the premiere names seems like a fair value to us.




I’m
heading to San Diego to speak at an investment conference tomorrow, so good luck
trading and I’ll be back Tuesday.

Internet
Basket

 

Our
early pass of our Dollar-Weighted Call to Put (Bullish) shows some interesting
money flowing into Philip Morris
(
MO |
Quote |
Chart |
News |
PowerRating)
and
Alcoa
(
AA |
Quote |
Chart |
News |
PowerRating)
.