Speculation of Yahoo (YHOO) buying Netflix (NFLX) is rampant in the trading circles.

The trigger for this speculation is appointment of Scott Thompson as the new CEO Yahoo.Thompson has been President of PayPal, which is a crown jewel of eBay (EBAY).

Thompson has significant background in technology, mobile, and international. As an outsider with a fresh perspective, he is likely to find significant low hanging fruit at Yahoo. Some analysts have criticized this choice because Thompson lacks media experience.

It is conceivable that to avert criticism of his lack of media background, Thompson may quickly move to buy a media company. Netflix forms a great fit with Yahoo. Yahoo has over 700 million eyeballs, but has lacked a strategy to monetize the traffic. Acquisition of Netflix will provide Yahoo an attractive strategic focus. Options players have been aggressively buying call options in Netflix.

Previously rumors have swirled that Microsoft (MSFT) would buy Yahoo. Such rumors have some validity because Reed Hastings, CEO of Netflix is a director of Microsoft. Yahoo has already outsourced its search function to Microsoft. The two companies have been closely collaborating. It is plausible that Yahoo and Microsoft may make a joint bid for Netflix. Such a strategy does make sense to counter competition from Google (GOOG), Apple (AAPL), AT & T (T), Verizon (VZ), and Comcast (CMCSA).

A large number of investors have been in Yahoo stock on the belief that Yahoo will be sold. Such investors are likely to be disappointed. Yahoo may still divest its…Read More at Seeking Alpha.