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Calls emerged as the options of choice on Zynga Inc (NASDAQ:ZNGA) yesterday. Roughly 19,000 calls changed hands, or more than five times the number of puts that traded. Longer-term bulls targeted the March series, scooping up a collective 11,412 3- and 3.50-strike calls for a volume-weighted average price (VWAP) of $0.53 and $0.36, respectively. Open interest at each strike soared overnight, and data from the International Securities Exchange (ISE) confirms that a number of positions were bought to open.
Jumping right in... Based on the average entry price for the at-the-money March 3 calls, ZNGA needs to push north of $3.53 (strike price plus the VWAP) by March expiration in order for the traders to turn a profit. This breakeven mark represents expected upside of 17.3% to the equity's current perch at $3.01. Meanwhile, breakeven for the out-of-the-money March 3.50 calls is $3.86, or in territory not explored by the stock on an intraday basis since March 12.
Given ZNGA's 27% year-to-date advance (as well as the limited profitability of buying puts on a security with a low share price), yesterday's campaign for calls was just more of the same. During the course of the past 20 sessions, traders at the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 172,296 calls on ZNGA, compared to 54,127 puts, resulting in a call/put volume ratio of 3.18. Echoing this is the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.52, which ranks in the 28th percentile of its annual range. Simply stated, short-term speculators are more call-heavy than usual.
While the majority of yesterday's activity centered on options expiring 10 months down the road, near-term traders have also been targeting the 3- and 3.50-strike calls in the front-month series. In fact, since June 3, open interest has risen by 17,915 and 75,839 contracts, respectively.
As touched upon, Zynga Inc (NASDAQ:ZNGA) has had tacked on a formidable gain in 2013. Although the stock hit some technical turbulence following last Thursday's quarterly results, ZNGA managed to find a foothold atop its 200-day moving average.