Dykstra's Deep-in-the-Money Call: Yahoo! - TheStreet

Dykstra's Deep-in-the-Money Call: Yahoo!

Despite Monday's selloff in the common stock there's a compelling trade in the January options.
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In sports, the best deal is often the one that isn't made.

That may sound like a cliché, but it's true. Teams preparing for a run at the postseason often consider a number of trades to improve their team that never materialize. Key players on both winning and losing teams are often discussed.

But for all the trades that are completed in pro sports, there are many more that are left on the cutting-room floor. Trades often involve more than just the talent of the players. Chemistry, personality and a player's ability to adjust quickly are all key elements. And on the ball field and in the clubhouse, it can be hard for new players to gel quickly with the rest of the team. That's why it's often better to look within an organization for the answers to a team's shortcomings than to bring in outside help.

In the business world, sometimes it's just better to walk away ... at least for the immediate future.

Over the weekend,

Microsoft

(MSFT) - Get Report

CEO Steve Ballmer announced his firm was withdrawing its offer for

Yahoo!

(YHOO)

, nixing a long talked-about deal. Ballmer had upped his offer to $33 per share for Yahoo!, from $31 a share earlier. The total deal was worth $47.5 billion.

However, the two sides couldn't come to an agreement as Yahoo!'s management, or mismanagement, insisted on $37 a share. Yahoo!'s mismanagement insisted the offer did not adequately value the company's strengths, including its Web search advertising technology.

As investors sent

Yahoo! shares plummeting

in the aftermath, I'm seeing this as a buying opportunity. I continue to believe this deal will get done

Yesterday, shares of Yahoo! got absolutely ripped, trading as low as $22.52 before closing at $24.37. That represents a 15% drop in share price. Volume was off the chart. However, shares of the company are still above their 52-week low of $18.58 and well ahead of the $19.18 the stock traded at on Feb. 1 before the bid was announced. However, it's also well off its highest point in the last 12 months, which was $34.08.

I like this pick for a number of reasons. First, as I said above, I strongly believe this deal between Microsoft and Yahoo! will get done. The deal appears dead at the moment, but that doesn't mean it is. If that happens, shares could bounce right back.

Furthermore, Yahoo! is reportedly exploring an advertising partnership with rival

Google

(GOOG) - Get Report

and also looking at

Time Warner's

(TWX)

AOL Internet unit.

Yahoo!'s CEO, Jerry Yang, is taking a beating right now, so he will make one of the moves in the near term. I like Yahoo! as a Web site, which leads to my decision to pick the Internet service provider as my DITM call this morning. I will place an order to buy 10 DITM calls going all the way out until January, 2009. I will place a limit order at $9.90 to buy the January $15.00 calls (VYHAC). This should leave plenty of time for things to shake out. If the order is filled, don't forget to place a GTC (good till sell) order $1.00 above the fill price ($9.90 is the fill price so $10.90 will be the sell price) to capture the $1,000 dollar gain.

Always Remember: Life is a journey, enjoy the ride!

At the time of publication, Dykstra had no positions in stocks mentioned.

Nicknamed 'Nails' for his tough style of play, Lenny is a former Major League Baseball player for the 1986 World Champions, New York Mets and the 1993 National League Champions, Philadelphia Phillies. A three time All-Star as a ballplayer, Lenny now serves as president for several privately held businesses in Southern California. He is the founder of The Players Club; it has been his desire to give back to the sport that gave him early successes in life by teaching athletes how to invest and protect their incomes. He currently manages his own portfolio and writes an investment strategy column for TheStreet.com, and is featured regularly on CNBC and other cable news shows. Lenny was selected as OverTime Magazine's 2006-2007 "Entrepreneur of the Year."