Put Butterfly on YELP on 8/28/2012

If yelping doesn't sound like fun, you may not be as hip as you think.  Yelp offers user-generated reviews and information on local businesses and service providers through its website at Yelp.com, and via its mobile app. Its content targets younger, urban consumers and covers restaurants, bars, salons, retailers, doctors, and museums. The site has a social media-friendly interface -- users can create and maintain profiles (complete with friend networks and photos), where they can blog on experiences with businesses. Yelp has established a foothold in cities across the US, Canada, and Europe. The firm was founded in 2004 by former PayPal engineers Jeremy Stoppelman and Russel Simmons. It went public in 2012.

Stockwinners is bearish on this name for the following reasons:

1. This whole sector has been doing horrible. FB, Zynga, Groupon and the list goes on. Yelp is no exception and is following the same path.
2. Similar to our Facebook trade earlier this month, Yelp's lock up period will expire tomorrow which will make 56 million shares available in the market. To put it in perspective, it is 7X more than the total number of shares released at the IPO.
3. This trade is profitable in a very large range and offers an attractive payoff of 1:3 (YELP's option volatility is very high and it is very expensive to buy options. At the money calls and puts cost over 10% of the underlying and will make it very tough to be profitable in the trade, as such a strategy that involves selling contracts is more attractive.)

NOTE: Execution is extremely important in this trade. Use Limit orders

Trade: Buy 1 Sept Put Butterfly 19/17/15 for less than $.50

• Buy 1 Sept $19 Put for $2.75
• Sell 2 Sept $17 Put for $1.45
• Buy 1 Sept $15 Put for $0.65

Breakeven & Profit/Loss Analysis

• Breakeven at $18.50 and $15.50 by Sept expiration
• Profit up to $1.50 between $18.50 and $15.50, Max Profit of $1.50 if yelp is at $17 by Sept expiration
• Losses up to $.50 between 18.50 to 19 and 15.50 to 15, max loss .50 below 15 or above 19

The payoff table is presented below:

Trade Buy 1 September $19.00 Put at $2.75 Sell 2 September $17.00 Put at $1.45 Buy 1 September $15.00 Put at $0.65 For a net debit of $0.50 Profit/Loss Analysis Breakeven at $15.50 and $18.50 Maximum profit is $150.00 at strike of $17.00 Maximum loss is ($50.00) at strike of $19.00 Closing Summary Sold 1 September $19.00 Put at $0.00 Bought 2 September $17.00 Put at $0.00 Sold 1 September $15.00 Put at $0.00

Position closed on 9/22/2012 at price of $0.00 with a -100.00% loss in 25 days.

Updates

9/21/2012 8:00:00 PM

This position expired on Friday 21st of September 2012.

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