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Option Briefs: A Zynga Inc (ZNGA) Winner Goes Back to the Well

ZNGA put seller targets the 2 strike for a long-term play

by 8/29/2013 2:52 PM
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Options volume is relatively sleepy across the board today, but Zynga Inc (NASDAQ:ZNGA) has seen heavy demand in its options pits, most notably on the put side. In fact, more than 80,000 puts have changed hands, which is 15 times the typical intraday volume for the online gaming provider.

More than half of this volume came across the tape in two massive block trades, just before noon. First, a 20,000-lot of January 2014 2.50-strike puts traded off the ask price of $0.20 apiece. Simultaneously, a block of 29,137 January 2015 2-strike puts changed hands at the bid price of $0.26. Heading into today's trading, open interest at the LEAPS strike was just 1,450, signifying that today's volume is on the opening side.

The shorter-dated options, however, may represent an earlier short put being sold to close. Trade-Alert flags that similar volume was seen at this strike in late November, when the puts were sold for between $0.43 and $0.48 apiece. If these are the same speculators, they are now repurchasing the options for just $0.20, retaining the difference as profit.

Meanwhile, by selling the 2-strike LEAPS, the speculator is betting that ZNGA will keep its footing atop this round-number level. If the put seller elects to hold the position through expiration (and Zynga is still north of this mark), he can keep the entire premium collected, as the puts will expire worthless.

Zynga Inc (NASDAQ:ZNGA) shares are sitting 0.7% higher at $2.90 currently, or 45% above the lower strike. In fact, the shares have never traded south of $2.00; the lowest they ever touched was $2.09 last November (shortly before the January 2014 2.50-strike puts became popular put-selling targets).


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