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Zynga Inc (ZNGA) Traders Forecast Extended Gains by Friday

March-dated call volume picks up speed on ZNGA

by 3/11/2013 1:31 PM
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Zynga Inc (NASDAQ:ZNGA - 3.90) has seen a bevy of bullish options activity on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) lately. In fact, the stock's 10-day call/put volume ratio of 7.39 confirms traders have bought to open more than seven calls for every put during the past two weeks. This ratio ranks above 78% of similar 12-month readings, meaning speculators have been scooping up calls over puts at an accelerated clip.

This optimistic trend has carried over into today's session, as well. Roughly 55,000 calls have crossed the tape so far, reflecting a 62% increase over the norm. At the other end of the options spectrum, just over 7,900 puts have been exchanged. Most popular has been the March 4 call, where nearly 13,500 contracts have traded at a volume-weighted average price (VWAP) of $0.11.

According to Trade-Alert, the majority of these near-the-money contracts changed hands at the ask price, and implied volatility was last seen 16.5 percentage points higher -- both of which underscore our suspicion of buy-to-open activity. In other words, speculators are betting on ZNGA to trek north of $4.11 (strike price plus the VWAP) by the closing bell this Friday. This represents a 5.4% increase over present levels. Meanwhile, the options' delta sits at 0.42, suggesting they have a 42% chance of moving into the money prior to front-month expiration.

However, sentiment among the brokerage bunch is much more cautious. Only three firms have deemed the stock worthy of a "buy" or better rating, compared to 13 "holds," and one "strong sell" suggestion. Even more telling, the security's average 12-month price target of $3.77 denotes a discount to ZNGA's current price. A reversal in sentiment among analysts could push the shares higher in the near term.

From a technical standpoint, the online game guru has climbed more than 65% year-to-date, while also besting the broader S&P 500 Index (SPX) by close to 37 percentage points during the past two months. What's more, ZNGA has recovered roughly 87% since touching an all-time low of $2.09 on Nov. 12.

At last check, the equity is up 9.2% to flirt with the $3.90 level, amid rumors that the company could be a possible takeover target for Yahoo! Inc. (NASDAQ:YHOO).


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