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Zynga Inc (ZNGA) Options Traders Bet On a Bounce

Zynga Inc calls have been favored among short-term option traders

by 4/7/2014 9:22 AM
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Despite seeing a rare uptick in put activity last Tuesday, the overall trend in Zynga Inc's (NASDAQ:ZNGA) options pits has tended toward the call side. Specifically, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.34 shows that call open interest roughly triples put open interest among options slated to expire in three months or less. What's more, this ratio ranks in the 10th percentile of its annual range, meaning short-term speculators have rarely been more call-heavy toward the stock.

In Friday's session, calls outpaced puts by a more than 7-to-1 margin. The demand for near-term options was evident in the stock's 30-day at-the-money implied volatility (IV), which shot 6.8% higher to 62.5% -- its loftiest perch since last October.

ZNGA's April 4 call received notable attention, and more than 12,000 contracts traded at this in-the-money strike -- the majority of which did so at the ask price. IV closed 3.8 percentage points higher, and open interest rose over the weekend, signaling buy-to-open activity. Based on the volume-weighted average price (VWAP) of $0.31, breakeven at the close on Thursday, April 17 -- when the front-month options expire -- is $4.31 (strike plus VWAP), or 2.6% above present trading levels.

On the charts, ZNGA has been in a steady downtrend since hitting a 52-week peak of $5.89 on March 11, with the shares off nearly 29% to churn at $4.20. Amid this sell-off, though, the equity's Relative Strength Index (RSI) has dropped to 32, suggesting the security is lingering near oversold territory. A bounce could come in today's session, with Zynga Inc (NASDAQ:ZNGA) flirting with a 2% lead ahead of the bell, after Wedbush added the stock to its "Best Ideas" list.


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