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Yahoo Deal Fails to Reward Verizon Communications Inc. (VZ) Option Bulls

Verizon Communications Inc. (VZ) will buy Yahoo! Inc.'s (YHOO) core assets for $4.8 billion

Jul 25, 2016 at 10:00 AM
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Verizon Communications Inc. (NYSE:VZ) has shaken up Silicon Valley, agreeing to acquire Yahoo! Inc.'s (NASDAQ:YHOO) core business for roughly $4.8 billion, as expected. Meanwhile, the future of YHOO's high-profile CEO Marissa Mayer is unclear, with VZ executive Marni Walden saying the company has "yet to determine who new leaders will be," due to the "abnormal process."

The reaction on Wall Street hasn't been particularly overwhelming. VZ stock is off 0.4% at $55.86. This could leave some options players wanting, considering their bullish appetites have been ramping up in recent weeks as the YHOO auction took center stage. Plus, Verizon is set to report earnings tomorrow morning, so options traders may be gearing up for a big post-event move higher.

Specifically, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 1.20 VZ calls for every put during the last 10 sessions. Two weeks ago, the call/put volume ratio was 0.99, with calls and puts being purchased at parity.

Of course, not all call buyers are necessarily bulls -- especially not with what's been happening elsewhere on the Street. Specifically, short interest rose 24.3% during the past two reporting periods, suggesting short sellers may have initiated long calls to act as upside insurance.

As alluded to, VZ will report earnings tomorrow morning. Looking back eight quarters, the stock has been a mixed bag in the immediate aftermath of this event -- with four swings to the upside, and another four to the downside. On average, the shares tend to move a modest 1.6% in either direction, in the session following earnings.


On the charts, Verizon Communications Inc. (NYSE:VZ) sports an impressive year-to-date gain of nearly 21%. However, since the start of July, the stock has more or less been trapped in the $55-$57 range.

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