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Volume in Zynga Inc's (NASDAQ:ZNGA) options pits yesterday was heavily skewed toward calls. About 45,000 contracts traded during the course of the session, which was more than three times the norm and more than eight times the put volume. The most active strike was ZNGA's September 3.50 call, where north of 11,000 contracts traded at a volume-weighted average price (VWAP) of $0.03.
Nearly nine out of ten contracts at the out-of-the-money strike traded on the ask side, suggesting they were purchased. Additionally, open interest swelled overnight, which -- together with data from the International Securities Exchange (ISE) -- confirms buy-to-open activity.
Therefore, in order for yesterday's call buyers to profit, they need the shares of Zynga to advance from their current perch at $3.27 past $3.53 (strike price plus VWAP) by this Friday, when the front-month options expire. Delta on the call is docked at 0.19, which means the option has a nearly 1-in-5 chance of moving in the money by week's end. That's down from yesterday's closing delta of 0.23, which is likely attributable to the shares' slight decline at the start of today's trading.
However, if the stock fails to make it past the strike within the option's lifetime, the most the traders risk forfeiting is the initial premium paid. That sum appears to be relatively cheap, historically speaking, considering Zynga Inc's (NASDAQ:ZNGA) Schaeffer's Volatility Index (SVI) of 50% ranks in the 11th percentile of its annual range. At the same time, implied volatility (IV) picked up 16 percentage points at the strike yesterday, and the security's 30-day, at-the-money IV rose 4.8 percentage points, or 10.5%, over the course of yesterday's session.
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