Yahoo! (YHOO) lower on reports of coming layoffs

Yahoo! Inc. (NASDAQ: YHOO) stock is falling this morning after the Wall Street Journal and New York Times both reported that the company is preparing to lay off workers in an effort to re-focus its business to better compete with rival Google (NASDAQ: GOOG). Unnamed sources told both papers that layoffs could number hundreds of employees. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on YHOO.

After hitting a one-year high of $34.08 in October, the stock has hit a new one-year low today. This morning, YHOO opened at $19.26. So far today the stock has hit a low of $19.26 and a high of $21.03. As of 11:00, YHOO is trading at $20.41, down 37 cents (-1.8%). The chart for YHOO looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bearish hedged play on this stock, I would consider a February bear-call credit spread above the $25 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in 4 weeks as long as YHOO is below $25 at February expiration. Yahoo! would have to rise by more than 22% before we would start to lose money.

YHOO hasn't been above $25 since December and has shown resistance around $24 recently. This trade could be risky if the US economy turns things around quickly, but even if that happens, this position could be protected by resistance YHOO might find around $24.

Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in YHOO or GOOG. He does provide content for AOL.