Monday, November 14, 2011

Yahoo! (YHOO) - Elevated Vol, OTM Call Skew Bid, Vol Inflection Point?

YHOO is trading $16.12, down 0.9% with IV30™ down 2.2%. The LIVEVOL® Pro Summary is below.


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Yahoo! Inc. (Yahoo!) is a digital media company. Yahoo! provides engaging and canvases for advertisers to connect with their target audiences. To users, it provides online properties and services.

This is a vol note on a stock with seemingly perpetual takeover rumors. Let's start with the Charts Tab (one year), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

On the stock side, while the price has been on a roller coaster, it's essentially unched for the year. The vol portion reveals the story. We can see the implied is trading well above the two historical vol measures. Specifically:

IV30™: 53.75
HV20: 39.94
HV180: 43.36

I've drawn in a horizontal line to help illustrate the level of the implied to its own past (not the historical realized vol, the historical implied vol).

The peak for the year reflects a sensitivity to the overall market -- that was the icky time for the market when ppl were willing to see the Euro-Zone problems (now we're more ostrich like... eh hem). The implied is at an interesting level as it's (sort of) at an inflection point. Either it spikes again to some news, or it falls back to the historical implied levels over the last year. That's all a guess, just sayin' it looks like ~54 vol is not a "resting point."

Let's turn to the Skew Tab.

In the front, we can see the upside skew is super bid -- takeover skew as I like to call it. This is the norm for YHOO and has been for quite some time as it moves in and out of bid OTM calls.

I've included the skew chart for today, again, but this time without the Nov options.

Once the axis are re-scaled we can see that what at first appeared to be a flattish skew in Dec is in fact also bid to the upside. This re-scaled skew also illustrates the vol diff between Dec and Jan. I believe the next earnings cycle for YHOO is after the Jan expo.

Finally, let's turn to the Options Tab for completeness.

Possible Trades to Analyze
Vol sales are interesting to analyze as are potential calendars -- maybe Jan against Nov and Dec, maybe even on ratios in both. If the upside is the risk in YHOO for a gap up (that's an "if"), then the downside may be less scary for ratios on the short side. Ya know, or not...

This is trade analysis, not a recommendation.

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