Yahoo options popular ahead of Alibaba IPO

NEW YORK (Reuters) - Alibaba Group Holding Ltd's BABA.N shares do not begin trading until Friday, so investors hungry for a bite of the Chinese e-commerce giant have turned their attention to Yahoo Inc's YHOO.O options in recent days.

The volume of options trading in Yahoo - which has a big stake in Alibaba - has risen steadily over the last month. On Thursday, a day before Alibaba’s debut on the New York Stock Exchange, options trading peaked with more than 929,000 contracts changing hands.

The spike in volume makes this the busiest week for Yahoo options since 2008, said Henry Schwartz, president of options analytics firm Trade Alert.

The stock has benefited from the enthusiasm over Alibaba, of which Yahoo holds a 22.4 percent stake. The U.S. Internet company is expected to sell shares of the Chinese e-commerce company, that could boost Yahoo’s cash stockpile, currently $4.2 billion, by as much as $3.1 billion.

Investors hope that Yahoo will continue to benefit from Alibaba’s earnings performance as it will maintain a stake in the company.

“This is just people speculating. If you can’t get in on the IPO, this is the next best way to get in on it,” said Lawrence McMillan, president of McMillan Analysis Corp.

Traders are speculating that Yahoo will continue to rise in price, McMillan said. So far in September, Yahoo shares have risen 9 percent, and are up 4 percent for the year.

The stock lost one percent to close at $42.09 on Nasdaq on Thursday with nearly 90 million shares traded, its busiest day since October 2011.

Options volume on Yahoo on Thursday was three times usual with 631,000 calls and 298,000 puts traded, according to Trade Alert data.

“For now, the focus is not on Yahoo, but rather the stake Yahoo has in Alibaba and the potential for a windfall from the IPO,” Ophir Gottlieb, chief executive officer at Los Angeles-based Capital Market Laboratories LLC, said.

Dan Mirkin, CEO at San Diego, California-based Trade-Ideas LLC, said Alibaba could open much higher than the level at which it is priced. The expected range for the stock was $66 to $68 a share, but some analysts, including Morningstar, said the shares should trade around $90 each.

“And if that is the case, that certainly is not priced into the Yahoo stock,” he said.

Reporting by Saqib Iqbal Ahmed; Editing by Bernard Orr