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Last-Minute Bears Pounce On Zynga Inc

Zynga Inc traders targeted front-month puts yesterday

by 7/18/2014 9:28 AM
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Zynga Inc (NASDAQ:ZNGA) puts traded at more than triple the average daily rate yesterday, and nearly doubled calls. Short-term contracts were in focus, too, based on the stock's 30-day at-the-money implied volatility, which popped 10.6% to close at 75.4%.

Eleventh-hour bears targeted the July 3 put, which was ZNGA's most active strike. By buying these contracts to open for a volume-weighted average price (VWAP) of $0.01, the traders expect the shares to finish today -- when front-month contracts expire -- below $2.99 (strike less VWAP). Additional gains will mount with each step lower, while the most the speculators have on the line is the initial premium paid, which they'll lose if the contracts expire out of the money. The stock is currently trading at $3.08 after rising 2% yesterday.

Historically, Zynga Inc (NASDAQ:ZNGA) hasn't closed below $3 since June 6. In fact, since touching a year-to-date low of $2.73 less than two months ago, the shares have added nearly 13%. As such, delta for the out-of-the-money puts is negative 0.26, signifying a roughly 1-in-4 chance the equity will be resting below the strike at today's closing bell.


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