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Zynga Inc (NASDAQ:ZNGA) has gained more than 24% in September to hover around $3.52, and the speculative crowd is taking notice. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.39 reveals that call open interest (among options expiring in the next three months) outweighs put open interest by a greater than 5-to-2 margin. The reading also stands at an annual low, meaning short-term speculators have never been as call-skewed during the past 12 months as they are now. In Thursday's session, nearly 60,000 call contracts changed hands -- more than tripling what's typically seen. By comparison, just 13,000 puts were traded.
The trend toward long calls continued in yesterday's session, but unlike the front-month activity seen earlier this week, the bullish speculators focused on the October series. Specifically, the October 3.50 call was the most active strike, as more than 11,000 contracts crossed the tape. Given that 80% of this volume traded off the ask price, and roughly two-thirds translated as new open interest overnight, it's likely that the bulk of these were purchased to open -- a theory that data from the International Securities Exchange (ISE) corroborates.
These soon-to-be front-month calls traded for a volume-weighted average price (VWAP) of $0.19. As such, breakeven for the call buyers at expiration on Oct. 18 is $3.69, or the strike price plus this VWAP. ZNGA has not traded in the $3.70 neighborhood since March, but the option's delta of 0.53 currently reflects a 53% chance that the calls will be in the money as they expire. If ZNGA shares instead slip back south of the $3.50 mark, the call buyers have only risked the premium paid.
On a relative basis, this premium is rather high. Implied volatility at the October 3.50 strike sits at 55%, compared to the one-month historical (or realized) volatility reading of 38.1%. What's more, the 30-day, at-the-money implied volatility measure on Zynga Inc (NASDAQ:ZNGA) has zoomed up to 55.1% from 41.3% on Sept. 6.
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