Stocks quoted in this article:
Social gaming stock Zynga Inc (NASDAQ:ZNGA) was targeted by long-term option bulls on Monday. The day's most active strike was the January 2014 2-strike call, where 3,050 contracts changed hands -- 84% at the ask price, suggesting they were purchased. Open interest at this LEAPS strike rose overnight by 2,413 contracts, confirming the addition of new long calls on ZNGA during yesterday's session.
By purchasing these options, traders are betting on ZNGA to rally over the next eight months. Those 2-strike calls traded yesterday at a volume-weighted average price (VWAP) of $1.35, which means the stock would need to rise above breakeven at $3.35 (call strike plus VWAP) prior to January 2014 expiration in order for buyers to turn a profit.
Monday's call-slanted action was a change of pace for ZNGA, which has more recently become a favorite target of option bears. In fact, Schaeffer's put/call open interest ratio (SOIR) for Zynga Inc stands at 0.79, which arrives in the 94th percentile of its annual range. In other words, short-term speculators have rarely been more put-heavy on the stock during the previous 52 weeks.
Technically speaking, ZNGA has gained about 35% year-to-date, with the stock currently trading at $3.18. The shares are testing support at their 80-day moving average, which hasn't been breached on a daily closing basis since Jan. 22. If this technical backstop gives way, Zynga could find another layer of support in the form of its 20-week trendline, which rests at $3.11.