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Zynga Inc (ZNGA): Still a Popular Bullish Choice

ZNGA call buyers continue to bet on upside

by 10/16/2013 2:42 PM
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Zynga Inc (NASDAQ:ZNGA) is riding the bullish wave of the broader market, up 2.9% today to $3.62. This positive momentum has inspired some short-term option traders, who are focused on the soon-to-be front-month series. Most active is the November 3.50 call, where nearly 3,000 contracts have changed hands, a healthy portion at the ask price. Data from the International Securities Exchange (ISE) confirms that at least some of these options are being purchased to open, as speculators bet on upside in ZNGA shares.

It's a rather expensive bet, from a volatility perspective. (Speculators paid a volume-weighted average price of $0.35 for the calls.) Implied volatility at this strike currently stands at 72.4%, compared to Zynga's one-month historical volatility of 52.6%..

This activity is more of a recent trend we have seen on the online gaming pioneer. During the last 10 weeks at the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), ZNGA has racked up a call/put volume ratio of 6.54 -- well above the Oct. 1 reading of 4.43. While calls will naturally be more popular on a low-priced stock (given the limited profit potential for long puts), this ratio is higher than 88% of similar readings taken over the past year.

Zynga Inc (NASDAQ:ZNGA) is slated to report third-quarter earnings after the close on Thursday, Oct. 24. Analysts expect a per-share loss of 5 cents, down from the company's breakeven results one year ago. Looking back over the last seven quarters, the stock has lost an average of 9.1% and 8.1% in the respective day and week following the news. Should Zynga issue a repeat performance, however, call buyers have merely risked 100% of the premium paid for their options.

Option Briefs offer a concise look at recent notable trading activity. For more in-depth coverage of securities from an Expectational Analysis perspective, please visit our Trading Floor Blog section.


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