NEW YORK (TheStreet) -- You may not know it, but Yahoo!'s (YHOO) biggest asset isn't, its most valuable asset is

Yahoo! owns a sizable chunk of


. We can only guess what Alibaba's valuation is, but anyone's opinion is probably as reliable as the next.

What we do know is if you incorporate the common and preferred shares, Yahoo! owns about 24% of Alibaba. The lowest respected estimates place Alibaba near $50 billion, and the highest I've read approaches $130 billion. As we know from


(FB) - Get Report

, anything can happen when a company goes public.

Here's where things truly get attractive. Break out the calculator and let's do a little math magic and see if we find some hidden value under the hood.

To begin, let's assume for a moment that Alibaba is worth near the high end of the estimates and call it even $100 billion (overly optimistic in my "never drink the Kool-aid" world, but it's a starting point).

If Alibaba is worth $100 billion, Yahoo!'s share is worth give or take about $24 billion. Yahoo!'s current market cap is about $30 billion, leaving a $6 billion valuation for all other Yahoo! assets. If you remove $2 billion in cash, we are left with a price tag of $4 billion for everything remaining. By now you may see where I'm going with this.

For every Yahoo! share you buy, about $3.70 is for the Web properties under Yahoo!'s control, and the remaining $24 in valuation is for cash on hand and Alibaba. Of course, that only works on paper and the market is a discounting mechanism, so let's postulate we're overly optimistic about Alibaba and reduce its value for Yahoo!. We should also discount cash based on some of Marissa Mayer's purchases failing to generate income. At the rate she is buying technology companies, it's not unreasonable to believe at least one will fail.

After removing cash and Alibaba, we can almost double the remaining price component paid for Yahoo!'s Web assets from $3.70 to $7. At $7, all else being equal, we can buy Yahoo! fully discounted and free after removing Alibaba and cash. Perhaps through a strategy utilizing dividends and options we can arrive at our desired destination.

Yahoo! doesn't pay a dividend, which makes calculating expected forward gains easier, although a dividend would be favorable at a time the company is flush with cash. If Yahoo! becomes flush with cash from an Alibaba sale, that may change. We are, however, able to use options, and they trade with ample liquidity.

If we can buy shares at Friday's closing price of $27.65 minus half of the $7 premium for Yahoo!'s Web assets (all else being equal), it's like a 50%-off sale. Granted, we're oversimplifying to a certain extent -- but the numbers are correct.

Now, $27.65 less $3.50 is $24.15. If you sell a January $25 put option for $1.20 and you're exercised, your cost basis is only $23.80, surpassing a 50% discount. Of course, the first thought that comes to my mind is what happens if Alibaba blows up because of accounting irregularities. We all know that happens from time to time with all companies, including (cough) Chinese.

The answer is to change the strategy from a pure bull play to a hedged spread play. Along with selling the $25 strike priced put, you simultaneously buy a $21 put for downside protection for 35 cents. The most that you can lose is $3.15, and your cost basis moves to exactly half again at $24.15.

OK, my real purpose isn't to say you should necessarily sell the above bull credit spread. Rather, it's to highlight that the core Yahoo! assets are heavily discounted. As an investor, you want to think in terms of what each part of the puzzle is worth -- and should be worth -- on its own before accepting the overall markets valuation.

Not often, but sometimes you find hidden value that the overall market hasn't fully figured out yet.

At the time of publication the author had no position in any of the stocks mentioned.

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This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Robert Weinstein is an active trader focusing on the psychological importance of risk mitigation, emotion and financial behavior of market participants. Robert co-founded the investing blog


, where he writes a journal about his trading activity and experiences.

In addition to


, Robert also contributes to

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