I believe the earnings report that YHOO came out with last night now puts them in a position of having to do a deal with somebody. The most likely candidate is MSFT, whether they like it or not. I do not believe that MSFT is walking away from this deal and they will get it done sooner rather than later. There are other interested parties in doing some sort of deal with YHOO or combining with MSFT. Regardless, something is going to happen and I believe that it is going to happen sooner rather than later now. I want to play this conservatively. I want to buy the stock and sell at-the-money calls, but instead of buying the stock, which is trading for around $28.50, I am going to buy a deep in-the-money July 17.5 call. These calls have very little premium in them, so you will participate on the upside as if you were long the stock with less than half the risk. Then I want to sell the May or June 27.5 calls to receive that entire premium when the deal goes through. If you are not comfortable with that amount of risk, which is about $900 per 1 lot spread if you sell the May options and $850 if you sell the June options, you can also purchase the May 22.5 put for about $0.20 which will reduce your downside even more. Good luck.

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