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Call Buyers, Put Sellers Play Zynga Inc (ZNGA) Ahead of Earnings

The volatile shares of ZNGA haven't attracted too many option bears

by 4/18/2013 1:05 PM
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As the social gaming specialist prepares to report its first-quarter earnings next week, option activity has grown quite bullish on Zynga Inc (NASDAQ:ZNGA). During the past 10 days, traders have bought to open 8.13 calls for every put on ZNGA, according to volume data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio arrives in the 82nd percentile of its annual range, confirming a stronger-than-usual skew toward bullish bets over bearish in recent weeks.

In particular, Zynga's April 3.50 call has attracted a lot of attention lately, gaining more than 6,000 contracts in open interest over the past 10 days. This strike now carries total open interest of 32,497 contracts -- and most of these out-of-the-money calls were bought to open, pointing to expectations for a short-term rally from ZNGA.

However, May-dated options will be the front-month series by the time Zynga Inc reports its first-quarter results, with the results scheduled to hit the Street after the market closes next Wednesday, April 24. Peak call open interest for the back-month series can be found at the May 3 strike, with 17,930 contracts outstanding. The vast majority of these calls were bought to open, and they're currently in the money by just fractions of a point.

Since options players have bought to open ZNGA calls over puts at a rapid-fire rate lately, it's interesting to observe that the stock's Schaeffer's put/call open interest ratio (SOIR) stands at an elevated 0.71, in the 96th annual percentile. That's considerably higher than the ratio's April 1 perch at 0.62, in the 72nd percentile. In fact, the current reading indicates that short-term speculators have rarely been more put-heavy on ZNGA during the past year.

Those near-term puts aren't necessarily bearish bets, though. As Andrea Kramer observed last week, Zynga has been heavily targeted by put sellers lately. Over the past 10 days, the ISE, CBOE, and PHLX report 18,950 puts sold to open on ZNGA -- outstripping the 2,110 puts bought to open by a margin of nearly 9:1.

Technically speaking, it's been a volatile ride for ZNGA, which is currently trading around $3.11. The stock is down more than 68% over the past 52 weeks, but it's gained nearly 34% so far in 2013. After peaking near the $4 level in mid-March, the shares have since pulled back to test support in the $3.00-$3.20 area. Premium sellers are likely hoping this technical floor holds up over the next month, as most of the 26,113 contracts in residence at the May 3 put were sold to open.


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