Yahoo!'s Startling Leap

 | Sep 27, 2013 | 10:15 AM EDT
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In the last week, Yahoo! (YHOO) shares have been on almost as much of a tear as Facebook (FB) stock has been. Imagine that. In the last five trading sessions, Yahoo! stock has gained more than 6% even as the Nasdaq has lost ground.

The options activity this week alone has been stunning: Major option-buying has been taking place on the January calls at the $38 and $40 strike levels. The stock's trading volume Thursday touched 40 million shares, whereas volume has traditionally totaled around 13 million shares a day over the summer months.

Obviously a lot of people are anticipating that Alibaba -- in which Yahoo has a 12% stake -- will soon file for an initial public offering. As I've written about earlier this week, it seems Alibaba management has now resigned itself to listing in the U.S. instead of in Hong Kong after the latter bourse didn't approve a dual-class share listing. It wouldn't surprise me at all if we saw an Alibaba IPO filing as early as tonight or next week. With such high trading volume in Yahoo, it appears that some bankers know something, and traders are getting a head start on the news.

But it's not just Alibaba's impending debut that's helping Yahoo! before an IPO. If that happens, Wall Street analysts will have to tack on another 38% to the value of Yahoo's stake in Alibaba, or several more dollars per share.

Then you have to deal with analysts' inevitable grudging upgrades to their Yahoo! price targets. Wall Street has been bearish on Yahoo! since the shares were priced in the high teens, saying that the core business remained challenged. They never imagined the Alibaba stake would grow so quickly. But -- like it or not -- YHOO is trading above the verbal $33 offer price Steve Ballmer made to buy Yahoo! in 2008.

UBS started this morning by setting a $37 price target on Yahoo!. Watch for others to follow soon enough.

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