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Takeover chatter may continue to drive Yahoo's stock price

|Includes: Altaba, Inc. (AABA)

Tim Biggam, TradingBlock  (December 2, 2011, 3:55pm CDT)

Symbol Analyst Target Price Target Date
YHOO 22.00 June 1, 2012

Yahoo! Inc. (ticker: YHOO) is a global internet media company offering communications, content, and a community platform that delivers consumer experiences and advertising solutions. The Company's site includes a hierarchical, subject-based directory of Web sites, which enables users to locate and access information.

Between Blackstone, Bain, Silver Lake, Alibaba, Softbank, Microsoft and others, there seems to be a pretty good likelihood for a suitor to emerge for Yahoo. While share prices have rallied lately due to the chatter, they are still trading well below the 22 level that may anticipate the bidding to begin.

Technically, YHOO did hold the 14.80 level and seems poised for an upside breakout above the recent highs at 16.70. Valuations remain reasonable, so I like the risk reward tradeoff of 2 points of downside to the 14.80 level versus 5 points of upside if a takeover play emerges. Remember, trading is all about probabilities, not certainties (unless, of course, your name is Raj Rajaratnam).

I think a deal may get done by June 2012, with a target (takeout) price of 22.  

Play of the Day

Based on Yahoo! Inc's (ticker: YHOO) current market price of $16.05 and using a target price of $22.00, a target date of June 1, 2012 and $1,000 of investment capital, below are three options strategies (ranked by potential profit) and a comparative stock trade to consider should the price target be achieved at the target date.

Click on the strategy name below to access trade details using TradeBuilder on TradingBlock.com. Powered by TradingBlock's TradeBuilder.

Strategy (click for details) % Return at Target Probability of breaking
even or better
Buy July Call Spread +145% 49%
Buy July Strangle +118% 42%
Sell July Put Spread +76% 60%
Buy Stock +37% 59%

* Click link to access TradeBuilder details on TradingBlock.com. Must have Instant or Actual account. Subject to change due to changing market conditions.  Click here to view risks regarding selling stock short.

DISCLAIMER: This content is provided for educational and informational purposes only. Evaluate any strategy prior to use to understand risk and suitability. TradingBlock does not endorse or warrant any Market Analyst content, service or product. Use this content at your own risk without guarantee or warranty of any kind from TradingBlock. Tim Biggam is a TradingBlock registered representative. He is not compensated by TradingBlock for any market research or analysis services.