WILL MARISSA MAYER’s BAN ON REMOTE WORKING TURN YAHOO AROUND?

Marissa Mayer caused a controversy last week when she announced (via an internal memo) that Yahoo (YHOO) would change its policy of allowing its employees to work from home.  While it was understandable that the number of Yahoo employees who would be expected to work in Yahoo offices beginning June 2013 were upset, the announcement also caused much discussion on social media like Facebook and Twitter and amongst major political and news figures.  Mayor Michael Bloomberg supported Marissa Mayer’s decision, apparently calling telecommuting ‘one of the dumber ideas I’ve ever heard’. However, Richard Branson, founder of the Virgin Group, disagreed on his blog with both Mayor Bloomberg and Marissa Mayer, and called Mayer’s plan a ‘backwards step’.  Regardless of which side of the telecommuting debate you fall on, trading liquid stocks during times of public controversy offer the savvy trader opportunities to make money.  Yahoo has at least one investing guru on its side – Jim Cramer (of TheStreet.com) is a fan of Yahoo CEO Marissa Mayer, and considers YHOO stock inexpensive.  This suggests that YHOO might indeed be a ‘turnaround’ candidate.

HOW TO PLAY THE YAHOO TURNAROUND

If today’s chart is any guide, it seems that despite the furor created by the planned change in Yahoo’s remote working policy (or perhaps because of it), the stock market supports CEO Marissa Mayer.  YHOO closed today at $22.70 (up 3.46%) compared to the meager gains of the broad market (Dow: up 0.27%, Nasdaq: up 0.39%, and S&P: up 0.46%).

Yahoo Gaps Up

YHOO April ’13 Options

If one is an aggressive trader and confident of YHOO’s move up, one could buy some OTM calls, and place a GTC order to sell half the number at double the purchase price and place a trailing stop to sell the remaining calls if the stock reverses (see prior post on The Power of the GTC order).  Clearly, this is a speculative trade with much upside potential, but should only be entered with ‘risk’ money that one can afford to lose (Example 1).

Bullish Trade – YHOO Long call

If one wishes to take a less aggressive yet bullish stance, one can open a Put Credit spread that will be profitable as long as YHOO stays above a certain $ limit (in Example 2, the trade will be profitable as long as YHOO stays above $22 by April options expiration).

Bullish Trade – YHOO Bull Put Credit Spread

Please note that the above trade examples are not recommendations and readers are responsible for their own trading decisions (see fine print disclaimer). I have used the option trades as examples to demonstrate how one might use current news items to generate profitable trades.  As long as one is careful to only trade liquid options on liquid stocks, one can exit the trade quickly if the stock moves contrary to one’s expectations (see Why Liquidity is Important). Be sure to have a plan before one enters the trade (see How to Trade Stock Options Online).

Happy Trading!