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.

Comments

Popular posts from this blog

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…

The market should take Trump seriously this time.

Kim Jung-Un gave the U.S. an unwelcome birthday present as he test launched an ICBM capable of reaching Alaska.  North Korea has made it very clear that their intention is to grow their nuclear capability to be able to reach the Continental United States.  This would destabilize the region, and world overnight.
Now I don’t expect the war drum beating will spill over into mortar shells raining down on Seoul anytime soon.  There has been a choreographed diplomatic dance going on for the past 40 years with North Korea that is likely to continue as follows; North Korea acts out, U.S. gets upset, U.S. sanctions them (with help from China).  North Korea gives up their acting out activity (promises they won’t do it again), a North Korean South Korean gesture of goodwill takes place, such as joint Olympic teams, joint economic projects, North Korea gets to declare victory.
However, this go around seems slightly different.  Now we have a President who has made it very clear in his campaign tha…