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Options: Heavy Call Buying in Yahoo!

Jud Pyle CFA

Bullish investors are looking to shout "Yahoo!" for Yahoo!(YHOO Quote) if they collect profits from the rally they expect to see throughout earnings season.

Looking at the Aug. 15 calls, at least one investor expressed bullishness and boosted volume in these near-the-money options. The investor bought 20,000 contracts for $1.10 a piece with the stock at $14.65. The Aug. 15 calls are currently up five cents on the day and are home to current open interest of just 207, suggesting that today's volume will translate as new positions tomorrow.

Shares of the second-most visited Web site (according to Web information company Alexa) have rallied 65% since reaching a 52-week low of $8.95 on Nov. 20, but they are nearly 70% off their 52-week high of $24.64, which Yahoo! reached on July 8, 2008.

Normal daily options volume for Yahoo! is about 35,000 contracts compared to the 45,000 contracts that changed hands today. The bulk of that volume changed hands on the Aug. 15 calls.

Although Yahoo! did not announce significant news today, at least one investor is betting these shares will rally higher than $15 in the August expiration month. The investor needs Yahoo! shares to expire higher than $16.10 to make money. The stock dropped 23 cents to close at $14.68 today.

Investors should not run out and buy Yahoo! shares just because of heavy call buying activity in the name. I recently wrote about some heavy put buying activity in technology companies Cisco Systems(CSCO Quote) and Texas Instruments(TXN Quote) , but at least one investor is playing contrary to this bearish trend in the technology sector.