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Optimistic Zynga Inc (ZNGA) Traders Forecast New Highs

Weekly call volume surges on ZNGA

by 9/25/2013 1:47 PM
Stocks quoted in this article:

Zynga Inc (NASDAQ:ZNGA) is trending 5.3% higher this afternoon to perch at $3.80, and the stock's positive price action hasn't gone unnoticed by bullish speculators. Approximately 71,000 calls have switched hands thus far -- more than quadrupling the equity's anticipated intraday volume. By comparison, around 14,000 puts have been exchanged. Also of note, the security's 30-day, at-the-money implied volatility (IV) is up 4.3 percentage points to rest at 62.9%. It looks as though a number of today's traders are expecting ZNGA to trek into new annual high territory by week's end.

At the helm is the weekly 9/27 4-strike call, which has seen north of 15,300 contracts cross the tape at a volume-weighted average price (VWAP) of $0.04. The majority of these near-the-money calls traded at the ask price, suggesting they were bought. Meanwhile, today's volume has exceeded current open interest levels, and IV has jumped 21.5 percentage points, signaling the creation of new positions.

In order for the traders to realize a profit from their bought-to-open calls, ZNGA must ascend past the breakeven rail of $4.04 (strike price plus the VWAP) by this Friday's close, when these weekly options expire. This represents an increase of 6.3% from the stock's present price, as well as territory not surmounted on a daily closing basis since July 2012.

The delta for this call sits at 0.25 -- notably higher than yesterday's reading of 0.11 -- implying the option has a 25% chance of moving in the money during its lifetime. However, even if ZNGA stays below the $4 level over the next couple of days, the most today's call buyers risk losing is the premium paid for their long positions.

Despite Zynga Inc's (NASDAQ:ZNGA) roller coaster ride on the charts, the stock still sports a 2013 gain of more than 61%, and has outshined the broader S&P 500 Index (SPX) by around 24 percentage points during the past month. However, it should be noted that the online game guru's Relative Strength Index (RSI) of 77 hovers in overbought territory, suggesting that a pullback could be in the cards for ZNGA.

Option Briefs offer a concise look at recent notable trading activity. For more in-depth coverage of securities from an Expectational Analysis perspective, please visit our Trading Floor Blog section.


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