The 'Mayer May' $100 Yahoo Long Call

Jul.19.12 | About: Yahoo! Inc. (YHOO)

Yahoo! (YHOO) is making yet another attempt to salvage itself. This time, with a new board calling the shots, Marissa Mayer has been snatched from Google to right the ship. There's plenty of commentary on the move pretty much everywhere.

Mayer Just May

I watched a few interviews with Mayer and read what seems like countless opinions across the web. I looked at the areas in Google (GOOG) where she left her mark and, sure, I think just maybe Yahoo! has something here.

An article in June suggested Mayer actually controlled 25% to 30% of Google after her move to "location and local services". Her prior employer was putting a lot of focus into local and has been since she moved there.

As a good research exercise, search her name on Google's news page. After the results come up, you can click "Show Search Tools" in the left column. Set a custom date of the first part of 2012, before the Yahoo! move was announced. The current articles offer a lot more media hype given their focus on her high profile Yahoo! move. I found some better background reading about Mayer with this method.

The $100 Long Call

I haven't touched Yahoo! stock in a long, long time. But I've decided she's got a good chance at being the person to really fix things up. I hate trying to time the market when it comes to something like this. There's likely to be lots of good and bad days ahead while Mayer "learns" Yahoo! and figures out what it realistically can and can't do.

For $100, I can pick up one Jan 2014 $20 Call. I can buy it, put it away and let Mayer do her thing for the next year or more. If she can pull things together and double Yahoo's price over the next 18 months to roughly $32, the option will be good for more than a 10 fold run at $1,200.

I could look at a shorter term spread, but I don't think this will be a quick fix turn around and at this point, I don't want to guess the direction daily or weekly. Since it's not a spread, the upside is not capped. If miraculous changes occur, the option would benefit further. While I could just buy a few long shares of the stock, there's a far larger return on a good news turn around story with my long call option.

Risks-A-Plenty

To be sure, this is a gut call. As such, it's a small investment for the potential of large return. Far out-of-the-money options like this are a rare and small portion of my overall investment strategy.

Mayer could just as easily fail as she could succeed. Global turmoil may negatively impact any success she does have. Or Yahoo! may just get packaged up pretty and sold off for a small premium that falls below the option's strike price.

Plenty of people are likely to comment on the article and tell me why there's a 99% chance my option will expire worthless. I will just acknowledge that here in advance, though comments are always appreciated.

Always use your own convictions and do your own due diligence when making a decision on how to invest and whether this type of trade is right for you. My opinion is completely non-professional and use of it is done at your own risk.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in YHOO over the next 72 hours.