Options trading often shows some key insight on trade bets as far as upcoming events. It appears that at least some options traders may be speculating that a higher bid is coming out of Microsoft (NASDAQ: MSFT) for Yahoo! (NASDAQ: YHOO). You can see that there has been much activity today in the near-month call options in Yahoo! when you compare these to the open interest:
Mo./Strike Contract Open Int.
YHOO JUL32.50 36,079 93,198
YHOO APR32.50 32,117 139,140
YHOO JUL30.00 28,735 79,245
YHOO APR30.00 24,754 177,117
The reason this looks more speculative is because these contracts are all above the current share prices. But if you look at these, whoever did the bulk of these options trades was looking for a higher bid or at least a more cooperative Jerry Yang. Even if there was no hostile bid, there is no way this merger would actually close that fast, so it would make sense that someone is hoping for or looking for a higher bid.
This could also be some "bullish spread" trading, although that volume is rather large for positions like that. On a fully leverage basis and assuming this was just natural buying, this would represent more than 12 million shares.
We’ll be the first ones to admit that even the market makers for options traders don’t always know the reasoning or a strategy that some other traders make. As noted, this could just be a hedged bet even though it would be a large one. Maybe many traders are just keying off of Steve Ballmer’s comments from Germany that Microsoft still wants Yahoo! and is still going to try to close the merger. Yahoo! shares are up about 0.5% at $27.93 on last look.
Jon C. Ogg
March 3, 2008