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Short-Term Speculators Eye Zynga Inc (ZNGA) Before Earnings

ZNGA's weekly calls are in vogue ahead of earnings

by 10/22/2013 2:11 PM
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Option Brief: Zynga Inc (NASDAQ:ZNGA) is bucking the broader market's path higher today, down 0.3% to $3.68. Nevertheless, call players have been flocking toward the stock, with about 23,000 contracts exchanged so far. This is an 8% increase over the intraday norm, and more than double the number of puts traded. One group of speculators is counting on the stock to rise by week's end -- a time frame that encompasses ZNGA's next turn in the earnings confessional.

Digging deeper into the data, about 8,100 calls have crossed at the weekly 10/25 4 strike, with 80% of them doing so at the ask price, implying they were purchased. Since this option holds open interest of just 4,330 contracts -- and implied volatility has surged more than 15 percentage points -- it's safe to assume that new bullish positions have been created here for a volume-weighted average price of $0.11.

By purchasing the calls to open, traders are counting on ZNGA to trek higher ahead of this Friday's close, when these weekly options expire. However, since short interest has spiked 28.5% during the most recent reporting period -- and now accounts for about 5% of the stock's float -- it's also possible that some of the aforementioned out-of-the-money call volume can be attributed to hedging activity by skeptics.

Still, optimism from the options crowd certainly wouldn't be unfounded, considering the security has advanced about 56% so far this year. Meanwhile, Zynga Inc (NASDAQ:ZNGA) is on deck to step up to the earnings plate after the closing bell this Thursday, Oct. 24, and has matched or bested analysts per-share profit projections in six of the last seven quarters. Today's call buyers beware, though -- ZNGA has shed, on average, 9.1% the day after posting results.


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