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Short-Term Bulls Place Bets On Zynga Inc (ZNGA)

Optimistic traders think Zynga Inc will finally topple the 5 strike

by 2/11/2014 11:03 AM
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Zynga Inc (NASDAQ:ZNGA) calls outstripped puts by a more than four-fold margin yesterday. Specifically, about 47,000 calls changed hands, versus just 11,000 puts. Most active overall was the gaming concern's March 5 call, where nearly 7,600 contracts crossed the tape.

Digging deeper, nearly three-quarters of the volume at the aforementioned strike occurred at the ask price, suggesting buyer-driven activity. What's more, open interest added 4,506 positions overnight, making it safe to assume the out-of-the-money calls were purchased to open.

In other words, yesterday's call buyers anticipate ZNGA will topple the 5 strike -- for the first time since July 2012 -- by the closing bell on Friday, March 21, when the back-month options expire. If the shares fail to make that move, the traders can rest easy knowing that the most they have on the line is the initial cash outlay. At last check, the equity was trading 1.4% higher at $4.63.

It's possible another strategy may have been at play yesterday, however. With short interest on ZNGA growing 9.3% in the latest reporting period -- and now comprising over 6% of the stock's available float -- it's possible some of the calls were bought by short sellers looking to hedge their bearish bets.

Taking a step back, Zynga Inc (NASDAQ:ZNGA) is a technical outperformer, besting the broader S&P 500 Index (SPX) by nearly 19 percentage points during the past three months. Lately, the shares were helped by a round of bullish post-earnings brokerage notes on Jan. 31, which propelled the stock 23.6% higher in the ensuing session.


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