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Bulls Pile On Zynga Inc (ZNGA) Despite Technical Troubles

ZNGA's January 2015 1.50-strike calls are being bought to open today

by 6/28/2013 1:28 PM
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Although Zynga Inc (NASDAQ:ZNGA) is trading 1.4% lower today, calls are outpacing puts by a margin of roughly 6-to-1. One of the more active positions thus far is the January 2015 1.50-strike call, where all of the 1,000 contracts traded have done so at the ask price. Implied volatility was last seen 5 percentage points higher, and volume is outstripping open interest, pointing to buy-to-open activity.

With ZNGA perched near $2.82, these calls are currently in the money. However, in order for traders to turn a profit, the equity needs to muscle above breakeven at $3.10 (strike plus the volume-weighted average price of $1.60) over the next year-and-a-half. Risk, meanwhile, is limited to the initial cash outlay. The options market is pretty confident this call will remain in the money for the duration of its existence, as delta for the position is docked at 0.88, or 88%.

This campaign for calls is not unusual in Zynga's options pits, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). During the course of the past 10 sessions, speculators on these exchanges have bought to open 34,668 calls, compared to 3,748 puts, resulting in a bullishly skewed call/put volume ratio of 9.25. What's more, this ratio ranks in the 83rd percentile of its annual range, indicating calls have been scooped up over puts at a faster-than-usual clip in recent weeks.

In the near-term, this collection of calls could come back to haunt these optimistic option players. In the front-month series, peak call open interest stands at the July 3 strike, where more than 19,100 contracts reside. This heavy accumulation of calls could translate into options-related resistance, as the positions begin to unwind over the next three weeks.

On the charts, Zynga Inc (NASDAQ:ZNGA) has shown some tenacity in 2013, with the stock up more than 19%. However, the equity's year-over-year deficit of 47.5% reveals a long-term technical laggard. More recently, the security lost its footing atop its 200-day moving average on June 5, and has since been wallowing south of this psychologically significant trendline.


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