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Put Players Make a Rare Appearance in Zynga Inc (ZNGA) Option Pits

Zynga Inc's April 4 put is a popular bet among option bears today

by 4/1/2014 2:29 PM
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Zynga Inc (NASDAQ:ZNGA) speculators have shown a preference for calls over puts among options slated to expire in the next three months, per the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.33, which ranks in the 10th percentile of its annual range. Simply stated, short-term speculators have rarely been as call-skewed toward ZNGA as they are at present.

In today's session, however, it's a put that is the most sought-after position; specifically, the April 4 strike. Of the 3,971 contracts traded here, more than three-quarters have gone off at the ask price, signaling buyer-driven activity. What's more, volume outstrips open interest, hinting at the initiation of new bearish bets.

At expiration in two-plus weeks, breakeven for today's put buyers is $3.94 (strike minus the volume-weighted average price of $0.06), or territory not seen by ZNGA since a late-January earnings-induced bullish gap. As such, delta for the put is perched at negative 0.22, implying a roughly 1-in-5 chance of an in-the-money finish at the close on Thursday, April 17, when front-month options expire.

Should the stock fail to fall the 7.6% necessary to breach the strike price, the most today's put buyers stand to lose is the initial premium paid. With ZNGA's Schaeffer's Volatility Index (SVI) of 53% ranked lower than 73% of similar readings taken in the past year, speculators can rest easy knowing premium on the stock's front-month options is relatively inexpensive.

Today's bearish positioning by option traders comes amid the equity's rebound from its recent sell-off. Since tagging an annual high of $5.89 on March 11, Zynga Inc (NASDAQ:ZNGA) has shed more than 26%. This afternoon, though, ZNGA is on the mend, up 0.7% at $4.33. However, with the equity's Relative Strength Index (RSI) of 31 signaling an oversold status, today's bounce may have been in the cards.


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