Deafening silence following the passing of a weekend deadline for response to Microsoft's takeover offer. The lack of response has kept implied volatility in Yahoo! options at a 71% elevation above the historic reading. While some market observers believe the failure of a Microsoft deal to materialize through "civil" channels could buy Yahoo shares a little more time at current levels even for a number of months, the option market sees added and immediate risk to its share price over the next 30 days.
Following on from a big day in speculative positioning (Friday's option volume was the highest for Yahoo since the Microsoft "bear hug" was originally made public on February 1), today's market sees heavy volume at both the May 22.50 put strike and the 30 call strike.
A couple of scenarios could be at work here. Traders may be positioning long volatility at each of those strikes, as the combined $1.26 premium would require very little sweetener to Microsoft's original bid, and protect investors against a collapse in the original deal. Or there may be reverse collars in play.
Today's 2.4% decline for Microsoft shares to $29 following Yahoo's mute rebuff suggests that the market feels the fortunes of this odd couple are in some sense entwined. In other words - a collapsed deal is bad news, not just for Yahoo, whose executives have delivered shareholders an I.O.U. on performance in recent quarters, but Microsoft, which seems bereft of sources for growth as it cuts revenue forecasts. Like a tetchy married couple gone to bed angry, option traders see no other possible alliance for these two cantankerous tech tickers.
Options in Microsoft show evidence of some traders looking for a quick recovery for Microsoft shares, given the degree of put-selling in the June contract at strikes 27 and 28, where premiums are up by nearly a third today. July 27.50 calls have been bought heavily today at around $2.62 apiece.