Yahoo spin-off talks boost shares

Implied volatility of the company’s stock is at its highest of the year versus an ETF mirroring Nasdaq 100

As Yahoo! Inc weighs corporate restructuring plans, options traders are paying a premium to play it safe.

Implied volatility on Yahoo’s stock is at its highest of the year versus an exchangetraded fund mirroring the Nasdaq 100 Index, according to data compiled by Bloomberg. The increase signals rising demand for options used to hedge against losses in Yahoo, whose stock has climbed almost 30 per cent since the end of September. That increase includes Wednesday’s 5.8 per cent gain, the biggest single-day jump in two months.

The stock is soaring as Yahoo directors meet this week to discuss the viability of spinning off its stake in Alibaba Group Holding Ltd and whether to seek a buyer for the company’s Web businesses. Some options investors are treading with caution, looking to protect recent gains or bracing for further news that could result in stock turbulence, according to Mark Sebastian of Option Pit.

“We’re seeing a huge volatility spike,” said Sebastian, options trader and founder of Option Pit, a Chicago-based education and consulting firm. “With all these meetings going on, there are expectations of a massive move, and that’s being priced into the volatility premium.”

Since dropping to a more than two-year low on September 28, Yahoo’s stock has increased 29 per cent, more than double the gain for the Nasdaq 100. It’s been the ninth-best-performing stock in a Standard & Poor’s 500 Index gauge of technology companies over that period.

Still down

Yahoo is recovering from losses earlier in the year. The company had dropped 45 per cent through the September low. It’s still down 29 per cent for 2015, while the Nasdaq gauge has increased 11 per cent. Investors are awaiting a turnaround as Yahoo’s sales slide and market share shrinks.

In meetings this week, Yahoo’s board of directors is discussing whether to stick to the company’s plan to spin off its stake in Alibaba, a person familiar with the situation said. The board is also weighing whether it will seek a buyer for Yahoo’s Web businesses, said another person familiar with the matter who asked not to be identified because the talks are private. Representatives for Sunnyvale, California-based Yahoo declined to comment.

Chief Executive Officer Marissa Mayer had planned to complete the spin-off by January and promised to update investors on her strategy for the rest of the ailing Web portal.