Is Yahoo worth anything?

We had a pretty listless day today.  VIX down with the SPX down is usually a snoozer, as the market takes a break and evaluates what volatility is really worth now that the printing presses are going full steam.  That moisture you feel in air is the strain of the dollar machine blowing steamy exhaust out of the building.  I guess the Euro theater is now just a spectator sport as the two sides decide what to give and how much to want.  Either way the central banks have committed to throw money at it so the VIX is looking iffy at a 14.18 close.

While the market evaluates the big picture how about a smaller one for Yahoo.  The same company MSFT almost got for $30+ per share a few years ago.  The stock is trading just under $16, as the market is starting to take notice that most of the value of the company is staked in Alibaba, a Chinese internet giant.  The name was languishing in the high 14’s a couple of weeks ago.  The business of Yahoo is priced right around yearly revenue.  I think this is a cheap company, but the options are cheap too.

At this level, most of the options are cheap from an implied volatility point of view.  Almost everything is near 1 year lows.  It is hard to think of Yahoo as a utility, but now that the deal is done, and lots of uncertainty is off the table.  The play is to go out to January to get the most bang for the Vega dollar.

The Trade

I don’t see huge risk in the Jan 16/15 (could work to the 14 put for less risk) risk reversal, as the most aggressive type of trade.  You can pick up the 16 strike that way for a .25 debit, and it will probably be in the money in a week or two (with 3 months to go).  For the less risk inclined, buy the 16/15 strangle. 

I have a position in YHOO

Gold classes are full for October. If you are interested in learning how to trade options, this is a must and we have room in November.

Follow us on twitter:

@optionpit

@optionvol