Skip to main content

Morning Update

Yahoo shares jumped 3% on Friday as trader responded to news that Yahoo’s Marrisa Meyer 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, and Yahoo Message Boards. 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.” Traders liked the new “less is more” policy out of Yahoo and the bullish stock trading spilled over into the options market, with over 5 calls trading for every put. One of the biggest trades of the day was the purchase of 2500 July 24/26 call spreads for $0.45 with the stock at 22.00.

This is a bullish bet that Yahoo will be above 24 .45 at July expiration, a 11% increase. The risk in this trade is limited to $0.45, but the reward is also limited to 1.55 for a maximum 344% return on risk should Yahoo close above 26 on expiration Friday. This morning shares are trading higher pre-market on news of an upgrade to Overweight at Barclay’s, which says that the company’s interests in yahoo Japan and Alibaba are undervalued.

Since Marrisa Meyer took the helm at Yahoo the company has been seen in a new light by investors, traders, and analysts. Although some of Meyer’s moves have been controversial, she is taking action and making the hard decisions that she thinks positions the company to get back on track for long term growth. This trade is a bet that the stock’s recent momentum will continue through the company’s next 2 earnings announcements. These should give traders an indication as the weather Meyer’s new policies are working, and whether value at Yahoo Japan and Alibaba is being unlocked and properly valued.


Popular posts from this blog

Wake Me Up When September Ends

The fiscal year for the U.S. Government ends September 30th, 2017. Which is something market participants could care less about if not for, sometime near that date, Congress needs to raise the debt ceiling. Missing that deadline would result in a self-inflicted financial wound that would send shock-waves throughout global markets.  The U.S. Government has been paying off debt since the Andrew Jackson administration without missing a single payment. Raising the debt ceiling is a routine vote.

In fact, with the polarized Washington we have seen in recent years, it is happening a lot more frequently, as Congress has only once passed a budget in the past eight years. In lieu of a budget, Congress passes what is known as a continuing resolution.  A continuing resolution is a type of legislation in which Congress decides to let last year’s budget continue as this year’s budget. Nevertheless, a continuing resolution is incomplete, as it does not allow for the government to spend the money a…

I would like to bet ten tens on the tenth horse in the tenth race, please.

"I would like to bet ten tens on the tenth horse in the tenth race, please."

Last summer, on a warm cloudy day June 11, 2016 in Elmont New York, a good friend of mine (Rob) confidently walked up to the cashier at Belmont and spoke those famous words.  Ten Tens on Ten in the Tenth Race.  In fact, it had been decided it months earlier. We had been discussing hosting his bachelor party in New York, go to the Belmont Stakes, and watch a Yankees vs Tigers game and Rob convinced the group to go to New York by proudly proclaimed his prophecy.  I had almost forgotten about this bold prediction when I witnessed him at the register, but when I looked up, and saw Flintshire, the 10th horse in the race upcoming race was the favorite.  “What could possibly go wrong?”  I thought to myself (an options trader who bought a racing program attempting to handicap and gain an ‘edge’ in the previous nine races unsuccessfully).  I went to a pretzel vendor and changed 5 twenties into ten tens, wal…

Is the KCJ Foreshadowing a 2008 Repeat?

The CBOE Correlation Index (KCJ) is close to the lowest level we have seen since it was first listed in 2007. The KCJ measures the implied movement of the S&P 500 components options, compared to the implied movement of the S&P 500 index options. Simply put, the higher the number, the more likely all stocks are going to move together. Conversely, a low number will be characterized by sector rotation, and flat markets; one sector moves higher, another moves lower. 
Correlation, for lack of a better term, is correlated with volatility. Not surprisingly, 30-day S&P 500 historical volatility is near the low level of 6.5%. Currently at 33.5, KCJ is sitting close to rock bottom, lower than where it was in 2007, (but not lower than where Lindsay Lohan was in 2007). 
So far this year, the market has been able to grind higher, characterized by leadership in FANG(Facebook Apple/Amazon, Netflix, Google) and sector rotation. As the summer hit, FANG has slowed with GOOGL and AMZN hitting…