Schaeffer's Trading Floor Blog

Zillow Inc (Z) Can't Shake Bearish Bettors

Z's long-term rally hasn't been enough to deter put buyers and short sellers

by 4/28/2014 2:26 PM
Stocks quoted in this article:

Among options traders, Zillow Inc (NASDAQ:Z) puts have been far more popular than calls of late. During the past five days at the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE), for example, speculators have scooped up nearly 12,500 long puts compared to fewer than 3,000 long calls.

Even from a wider vantage point -- which includes 10 sessions' worth of data, as well as information from the NASDAQ OMX PHLX (PHLX) -- the bias toward puts over calls is just as strong. Z's 10-day ISE/CBOE/PHLX put/call volume ratio checks in at 4.06, with long puts quadrupling long calls. What's more, this metric ranks at the top of its annual range, suggesting traders have never targeted bearish bets (relative to bullish) at such a rapid pace, looking back 12 months.

On a similar note, Zillow's Schaeffer's put/call open interest ratio (SOIR) of 1.52 indicates put open interest exceeds call open interest by a greater than 3-to-2 margin, among options set to expire in the next three months. Tellingly, the SOIR is a mere 11 percentage points from a 52-week high, meaning short-term traders' affinity for short-term puts has rarely been greater, relatively speaking.

Bearish sentiment is prevalent even outside of Z's options pits. For instance, five of 11 covering analysts have given it a lukewarm "hold" rating, and the consensus 12-month price target of $96.71 is less than 10% above the current price of $88.20. In addition, short interest on Zillow increased nearly 20% during the last two reporting periods, and now makes up nearly one-third of the equity's float.

On the charts, however, Z has been running higher over the long term, despite today's 5% pullback. On a year-over-year basis, the shares are up nearly 60%, and since early December, have been ushered higher by their 40-week moving average. On a relative-strength basis, the security has bested the broader S&P 500 Index (SPX) by close to 11 percentage points during the previous two months.

In other words, from a contrarian perspective, Zillow looks well positioned for a run higher. Specifically, if the option bears and short sellers start hitting the exits -- or the analyst crowd re-evaluates the stock via upgrades and/or raised price targets -- it could add fuel to Z's fire.

On the fundamental front, Zillow Inc (NASDAQ:Z) is tentatively scheduled to report earnings sometime next week. The company has bested analysts' bottom-line estimates in each of the last eight quarters -- though the equity still tends to move sharply lower in the week after reporting. This time around, the Street is calling for a per-share loss of 8 cents from Z, compared to a 1-cent-per-share quarterly profit a year ago.

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