Filed under: Major movement, Deals, Good news, Competitive strategy, Google (GOOG), Yahoo! (YHOO), Options, Technical Analysis

Yahoo! Inc. (NASDAQ: YHOO) shares are gaining today on the heels of a couple of reports creating buzz around the company. First, a new report shows that more people than ever are spending more time than ever viewing video on the Internet (shocking, right?). Yahoo! trails Google’s (NASDAQ: GOOG) YouTube for second place in market share, but still holds a significant portion of the market. Second, news came today from the WSJ that Yahoo is purchasing BuzzTracker, a popular news and editorial website, which could help Yahoo! gain market share in the online news and blogging sphere. If you think that the company won’t fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on YHOO.

After hitting a one-year high of $33.61 in May, the stock has dropped over the past four months, hitting a one-year low of $22.27 in late August. YHOO opened this morning at $23.69. So far today the stock has hit a low of $23.65 and a high of $24.43. As of 11:05, YHOO is trading at $24.43, up $0.71 (3.0%). The chart for YHOO looks neutral and improving, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $20 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in just 5 weeks as long as YHOO is above $20 at October expiration. Yahoo! would have to fall by more than 18% before we would start to lose money.

YHOO hasn’t been below $20 since late 2003 and has shown support around $23.50 recently. This trade could be risky if the company’s earnings (due out 10/16) disappoint, but even if that happens, this position could be protected by the strong support the stock formed between $22 and $23 in August and early September.

Brent Archer is an options analyst and writer at Investors Observer.

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This entry was posted on Friday, September 14th, 2007 at 3:36 pm and is filed under Goog news. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.