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Big Zynga Inc (ZNGA) Trade Reveals Short-Term Skepticism

One option trader doubts ZNGA's upside potential by selling calls

by 11/13/2013 9:43 AM
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Option Brief: Yesterday's option pits were call-heavy for Zynga Inc (NASDAQ:ZNGA). Specifically, the mobile-games maven saw 62,000 calls change hands, compared to expected intraday call volume of 32,000 and fewer than 2,300 puts. Most active by a mile was the at-the-money December 3.50 call, where 51,666 contracts were exchanged.

With respect to that strike, the majority of the action occurred as a block trade of 47,015 contracts, which crossed at the bid price, suggesting they were sold. Open interest at the strike soared by nearly 49,000 contracts overnight, too, pointing to the creation of new short positions. This theory is confirmed by data from Trade-Alert.

In order for yesterday's neutral-to-bearish call writer to profit, he needs ZNGA to be sitting below $3.50 at the closing bell on Dec. 20, when the options expire. If the stock, currently perched at $3.60, remains above the strike price, the trader risks assignment -- in which case, he could be forced to deliver the shares at $3.50 apiece, no matter how high they've risen.

Technically speaking, Zynga Inc (NASDAQ:ZNGA) has displayed an impressive degree of strength in the past few months. For example, the shares have outperformed the broader S&P 500 Index (SPX) by roughly 19 percentage points during the previous 60 sessions.


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