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Option Brief: For the second time in three trading days, Zynga Inc (NASDAQ:ZNGA) is seeing bullishly skewed trading activity in its options pits. Call volume currently exceeds typical intraday volume by a factor of four. What's more, the primary focus of these optimistic options buyers is the same short-term position as earlier this week -- the May 4.50 call.
This front-month strike is the most active ZNGA option by a sizable margin, accounting for roughly 87% of the stock's total call volume today. Nearly all of this volume has changed hands at the ask price, and implied volatility has shot almost 8 percentage points higher at the strike, suggesting the purchase of new long calls -- a theory supported by Trade-Alert data.
Effectively, these long calls represent bets that Zynga shares will move sharply higher during the next two-plus weeks, ahead of May options expiration on Friday, May 16. In order for these calls to be in the money (stock price north of the strike price) when the options expire, ZNGA would need to rally 16% from its present perch of $3.88 to the $4.50 mark.
As the calls were acquired for a volume-weighted average price (VWAP) of $0.09, breakeven (at expiration) stands at $4.59 (strike plus VWAP), a level above which Zynga Inc (NASDAQ:ZNGA) traded as recently as last Thursday, following the company's earnings release and a number of price-target hikes. Still, delta for the calls comes in at 0.21, reflecting a slightly better than 1-in-5 chance that the options will be in the money when the closing bell rings on expiration Friday.