Stocks quoted in this article:
Zynga Inc (NASDAQ:ZNGA) has spent the past six months in a near-1-point range, yet option traders are gambling on a short-term breakout for the social gaming guru. During the past two weeks, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open almost eight ZNGA calls for every put. This ratio stands higher than 62% of all other readings of the past year, pointing to a slightly healthier-than-usual appetite for bullish bets of late.
Echoing that, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.43 indicates that calls more than double puts among options with a shelf-life of three months or less. While this isn't entirely surprising, considering ZNGA is trading at $3.05 (meaning profit potential is limited for put buyers), this ratio registers in the 5th percentile of its annual range. In other words, near-term option traders have rarely been more call-heavy during the last 12 months.
Digging deeper, the October 2.50 and 3.50 calls have attracted notable attention, with about 4,000 and 5,500 contracts added, respectively, over the past two weeks. Furthermore, most of the calls were bought to open, underscoring our theory of fresh bullish bets. Nevertheless, the at-the-money October 3 call remains home to peak call open interest in the soon-to-be front-month series, with more than 11,100 contracts in residence.
ZNGA's short-term options are relatively cheap right now, too. The stock's Schaeffer's Volatility Index (SVI) has descended to 40%, and now sits just 1 percentage point shy of an annual low. In simpler terms, ZNGA's near-term contracts are inexpensive, on a historical basis.
Elsewhere on Wall Street, ZNGA isn't as beloved. In fact, just one out of 22 analysts deems the stock worthy of a "buy" or better rating. In similar fashion, the consensus 12-month price target of $3.20 represents expected upside of just 5% to ZNGA's current price.
As alluded to earlier, Zynga Inc (NASDAQ:ZNGA) has spent the past few months dancing between support at $2.50 and resistance in the $3.50 area. The shares haven't finished a week north of $3.50 since early April, and they're now struggling to surmount their 10-week and 20-week moving averages, which are hovering just atop the $3 marker.