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Bullish Zynga Call Traders Think the Worst May Be Over

Calls have become quite popular on ZNGA in recent weeks

by 12/14/2012 11:15 AM
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Options traders seem to be feeling rather upbeat toward Zynga, Inc. (NASDAQ:ZNGA - 2.64), based on a recent skew toward bullish bets over bearish on the online gaming stock. During the past five days, speculators on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have bought to open 17,337 calls on ZNGA, compared to only 608 puts. The stock's resulting five-day ISE/CBOE call/put volume ratio of 28.51 confirms calls have been the options of choice over the past week.

Taking a broader look, ZNGA has racked up a 10-day call/put volume ratio of 7.82 on the ISE, CBOE, and NASDAQ OMX PHLX (PHLX). This ratio ranks higher than 87% of other such readings taken during the last 52 weeks, suggesting traders have purchased calls over puts at a faster clip only 13% of the time.

Further cementing this optimistic attitude, ZNGA's Schaeffer's put/call open interest ratio (SOIR) checks in at 0.54 -- revealing that calls nearly double puts among options set to expire within three months.

The most heavily populated strike in the front-month series is ZNGA's December 2.50 call, with 25,939 contracts outstanding. According to data from the major options exchanges, most of these calls were bought to open.

It's been a rough year for ZNGA, with the equity down roughly 72% year-to-date, but the stock has recovered from its November lows near the $2 level. In fact, the shares are attempting to collect a third consecutive daily close atop their 80-day moving average, which previously served as resistance.

 Daily Chart of ZNGA since October 2012 With 80-Day Moving Average

If ZNGA does manage to build on its fledgling rebound, there's plenty of room for sentiment to improve among analysts. Currently, the stock sports just three "buy" or better ratings from brokerage firms, compared to 13 "holds" and two "sell" or worse recommendations.


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