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Zynga Inc (ZNGA): Option Traders Put $5 in Focus

ZNGA's January 2014 5-strike call was targeted on Friday

by 12/9/2013 10:12 AM
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Option Brief: Calls were the options of choice on Zynga Inc (NASDAQ:ZNGA) Friday, outpacing puts by a margin of nearly 3-to-1. The most popular position was the January 2014 5-strike call, where 3,474 contracts changed hands, mostly at the ask price. Open interest jumped over the weekend, making it safe to assume that a fresh batch of bullish bets was initiated.

The expectation for ZNGA to push above $5 -- into annual-high territory -- ahead of January options expiration is one that a number of option players hold, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Since Nov. 1, nearly 14,650 contracts have been added to the deep out-of-the-money strike -- most of which have been bought to open -- and it now contains peak call open interest in the back-month series. Should ZNGA fail to rise the 26% needed to topple the strike price, the most any of the call buyers stand to lose is the initial premium paid.

This bullishness among option players isn't surprising, considering Zynga Inc (NASDAQ:ZNGA) is up about 67% on the year. However, not everyone on the Street is convinced that ZNGA will maintain its upward momentum. All but one of the 21 analysts covering the stock maintain a "hold" or worse recommendation, and the consensus 12-month price target of $3.73 stands at a discount to Zynga's current perch at $3.97. From a contrarian perspective, a round of upgrades and/or price-target hikes could help push ZNGA toward the $5 mark.


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