Dan Nathan's Yahoo! Inc. Trade

Dan Nathan talked on CNBC's Options Action about a bullish options strategy in Yahoo! Inc. YHOO. He said that people are asking him all day how to take a long position in the stock because they see it as a play on Alibaba Group Holding Ltd BABA. Nathan thinks that it is better to buy Yahoo! Inc. than Alibaba Group Holding Ltd, because it is trading below its core value. To take a long position he would buy a call butterfly with November expiration. Specifically, he would buy the November 40 call for $3.20, sell two November 45 calls for a total of $2.70 and buy the November 50 call for $0.50. This trading set up would cost him $1 and it would be profitable if the stock trades between $41 and $49 on November expiration. Maximal profit of $4 would be achieved if Yahoo! Inc. trades at $45 on November expiration. Mike Khouw added that he likes the 4 to 1 ratio and the fact that the stock doesn't have to move a lot to pay off because the structure is slightly in the money.