Very possible. In the end though all this OI means that the sellers of the calls (many of them are ITM and many are profitable for the buyers at this point I bet) will have big losses UNLESS they buy the stock (so it offsets the sold call option). That should create volume to drive the stock up at least some. They can also buy puts to offset the calls they sold...so it's not a guarantee. Very complex interplay btw stock, options, put and call sellers etc. No one knows what will happen but I'm pretty sure if BABA goes above IPO price, YHOO will go close above $43
Big Boys are all betting that this thing gets to at least 45 on Friday. That looks good for YHOO holders so far. We will see what tomorrow brings but the large blocks will be purchased Thurs. after hrs. for the open on Fri.
Also, ext value should be near zero for some NTM puts so if I can't sell 4/5 of my calls at mid B/A, i will buy some puts to exercise to offset the call exercise, so I can keep more of my calls into the weekend, lock in the profit and not pay the slippage and not get the margin call. It all depends on what happens Friday so I will be pretty glued to the screen from IPO time till 4pm
I have to admit that the last two days has been disappointing.That being said, I think that a lot of traders are going to have a hard time getting baba shares at a reasonable price. As baba shares skyrocket and investors realize they aren't going to get any; they will ride the alibaba 7 stocks that are available-- yhoo being my number 1 pick. On a side note; I do plan to buy some puts as protection. This is not because I do not believe that yhoo will rise with baba, it's because the market isn't necessarily rational-- as we have seen the last two days.
A lot of volatility caused by the Big Boys,the paid bashers, political and economic concerns.
Cheers and all the best!
I have only Sep (exp Fri) calls. I have a whole series of ITM calls from 39 to 41 (I was buying over the last two weeks, trying to buy dips and specifically ITM calls w low ext value. My biggest mistake was loading up on some 40s on Fri, they are at breakeven right now). I don't plan to roll them (into Oct) at this point. What I will do on Fri is find a good time to sell a portion of the calls (the ones w strike prices closest to trade price since the spreads are tigher) and exercise all the remaining ones into shares. I will go on margin for this (margin % interest is less than the ext value I would pay for Oct calls) and hold the stock for any future runup after the BABA ipo. I will have to sell 4/5ths of my calls to do this without margin call. The other option is if the bid/ask spreads are way too high or volatility is nuts, I may unload a litltle less calls and go into the weekend w/ margin call on Monday. Bigger risk b/c on monday yhoo may move down, but if things are stable towards EOD friday that may be the way to go
The tax bite on the sale of the remaining Alibaba stake could be $10 billion or more assuming a 35% tax rate. That's why Wall Street is eager to see if Yahoo can dispose of that Alibaba stake in a tax-efficient way.
Another possibility for Yahoo would be for Alibaba to execute a "cash-rich" split-off in which Alibaba would include cash and an operating business into a company that would swapped for Yahoo's Alibaba stake. That also would be tax-efficient for Yahoo but would require the cooperation of Alibaba. The Malone-style deal would not.
Selling Yahoo For Alibaba? Not So Fast
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There have been several commentators lately on business TV and on blog posts suggesting that Yahoo YHOO +0.38% (YHOO) investors will soon sell their shares in the Internet pioneer in order to buy Alibaba (BABA) shares directly.
The thinking seems to go that Yahoo’s stock has only risen in the last two years due to the appreciation of Alibaba. And, post-IPO, you can own Alibaba shares directly, so why would you need to own Yahoo shares? These commentators are expecting that Yahoo’s shares will drop in value after the Alibaba IPO.
Here are some headlines I’ve seen:
- Is Yahoo’s Alibaba Run Over?
- A Bunch of Yahoos
- Yahoo’s time as an Alibaba proxy is running out
Anyone who has followed any of my recent writings and comments about Yahoo will know that I’m anything but a Marissa Mayer apologist. However, I’d like to point out some flaws in this argument that you should dump your Yahoo shares before everyone else does in order to have direct exposure to Alibaba.
First of all, this argument is not new. In July, when Yahoo’s stock price was $32/share, there were many on business TV suggesting you should get out of Yahoo’s stock in order to free up cash to buy Alibaba directly. Now Yahoo’s stock price is close to $43/share so that hasn’t been a good strategy.
(AP Photo/Marcio Jose Sanchez, File)
But let’s look at the merits of the argument now. The reality is that Yahoo is going to continue to own 16.3% of Alibaba post-IPO. And they’ll have lots of cash (probably over $11 billion). And they’ll have their 35% stake in Yahoo Japan . And then their plain old core business doing about $1.2 billion in annual EBITDA now.
Yahoo has always been a sum-of-the-parts story and it’s going to continue to be post-IPO. The Yahoo stock price is going to be worth whatever folks think all those assets are worth.
What are they all worth? I’d say the Yahoo Japan stake is worth $5 billion assuming they unwind the stake at current levels and pay all taxes (which there’s probably a good solution for avoiding). I’d say the core business of Yahoo is worth $10 billion to a strategic buyer knowing full well that they can cut headcount by 10,000 people and see an enormous jump in headcount. So that’s $26 billion right there.
Then we have 16.3% of Alibaba. What’s that going to be worth post-IPO? My guess is that Alibaba will trade up to $90/share or a market cap of $215 billion. That means Yahoo’s remaining stake would be worth $35 billion assuming Yahoo avoids taxes on that stake (which I think is highly likely when they dispose of the stake a year from now in Hong Kong and keep the money overseas to borrow against). If you assume Yahoo pays full taxes on that stake (which they won’t), it’s worth $23B.
But Yahoo’s not going to sell its stake right away. They’re going to keep it for another year. What’s it going to be worth then? No one knows for sure but my modelling suggests Alibaba will be trading around $111/share a year from now or $275 billion. If true, the Yahoo stake will be worth $45 billion untaxed (which I think is the correct way to think about what will happen when they liquidate their stake in the jurisdiction of Hong Kong).
So you have in Yahoo’s stock a collection of assets where the Alibaba stake would be worth $45 billion in a year from now and everything else would be worth $26 billion. Combined that’s $71 billion in assets potentially — or about $71/share.
So is Yahoo’s stock going to stop being a proxy for Alibaba post-IPO? I don’t see it when two-thirds of the potential value of the assets within Yahoo will be related to Alibaba.
Here’s an example to think about. In 2001, a South African newspaper company bought a stake in Alibaba competitor Tencent. Today, Naspers still owns 34% of Tencent. Look at the charts of these two companies. Since 2007, Tencent is up 1880%. Naspers is only up 635%. Not as much but it makes sense since it “only” owns 34% of Tencent (which is worth about $50 billion today). And what have other newspaper companies done over that timeframe? The New York Tims is down 40% in value and Gannett GCI +1.09% is down 53%.
My point is that Naspers investors have always adjusted the value of their investment to reflect the current valuation of Tencent. They didn’t ignore it suddenly.
Yahoo’s stock post-Alibaba IPO will continue to trade based on the value investors perceive in its assets. Maybe there will be some turnover of shareholders. Maybe day-traders will flip out of Yahoo stock and buy Alibaba stock. But if there is a big drop in price of Yahoo’s stock, I doubt it won’t be long before other investors sniff out a possible path for how Yahoo’s stock could trade up to $71/share pretty quickly.
Really long article. I'll try to copy the relevant portion:
Less than a month ago, Liberty Ventures (LVNTA) spun off its 22% stake in TripAdvisor (TRIP), the online travel site, to its holders in a tax-free transaction that got the blessing of the Internal Revenue Service. It paired the TripAdvisor stake with a Less than a month ago, Liberty Ventures (LVNTA) spun off its 22% stake in TripAdvisor (TRIP), the online travel site, to its holders in a tax-free transaction that got the blessing of the Internal Revenue Service. It paired the TripAdvisor stake with a smallish business, BuySeasons, which sells costumes and party supplies on the Internet.
smallish business, BuySeasons, which sells costumes and party supplies on the Internet.
The TripAdvisor stake, worth about $3 billion, and BuySeasons were spun off into Liberty TripAdvisor Holdings (LTRPA). Normally, companies can't execute a tax-free spinoff unless they control at least 80% of the company being spun off but Malone found a way to get it done.
Media mogul Malone, Liberty Ventures' chairman and controlling shareholder, has a reputation as one of the great tax minimizers in Corporate America. Malone's Liberty Media plans to do a similar tax-free spin off of its valuable stake in Charter Communications by pairing it with a small company it owns called TruePosition and creating Liberty Broadband.
The idea would be for Yahoo to take its 383 million shares of Alibaba and create a new company that would hold that stake plus another Yahoo business and spin off that company to Yahoo holders on a tax-free basis. Yahoo is subject to a one-year lockup on that 383-million share stake in Alibaba, but it's unclear whether any spinoff would be subject to lockup since the Alibaba stock wouldn't be sold. That stake of 383 million shares would be worth $27 billion if Alibaba trades at $70 after its IPO, and it would be valued at more than $30 billion if Alibaba trades at $80.
I can easily see $70 by the end of the year with good news. We have two sets of earnings which both should be positive. We also have singles day. This will be a huge pop in stock price for Alibaba so long as they do not disappoint. Which they really have not so far. Singles day always seems to surpass the previous years totals each and every year by a mile. I am long YHOO
Sentiment: Strong Buy
"I know all I need to know"
what you've demonstrated that all you know is what you want to know despite FACTS being put in front of you.
Afterhours is typically almost always everyday people trading.
I find it funny that people make a trade worth thousands because of what someone said on TV. Yesterday was funny cause of what Cramer said and the stock was up $.40. Now today people are selling because of Fast money.
apparently, i haven't been canned yet (i DID get that email warning).
strange thing is i can't sign out to find out if can sign back in.
maybe the process hasn't caught up yet.