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Zillow Bear Eyes Round-Number Stumbling Block

One bearish speculator opened a long put spread on the shares of Z

by 8/30/2012 10:19 AM
Stocks quoted in this article:

We've heard several upbeat reports on the housing market this week, but the stronger-than-forecast data hasn't inspired any warm, fuzzy feelings toward Zillow, Inc. (NASDAQ:Z - 40.52). Put volume on the real-estate site surged to roughly three times the norm on Wednesday, with 2,999 contracts changing hands -- compared to only 950 calls. Taking a closer look at the data, one speculator opted to initiate a bearishly slanted spread on Z, using a pair of October-dated options.

Specifically, several blocks totaling 250 October 40 puts traded near the ask price shortly after midday, while several matching blocks of 250 October 35 puts simultaneously crossed closer to the bid price. Data from the International Securities Exchange (ISE) confirms that the October 40 puts were bought to open, while the October 35 puts were sold to open. In other words, this trader opened a bear put spread on Z, with the expectation that the shares will finish at or below $35 by the time October-dated options expire.

Z weekly price chartHowever, this kind of negative attention is par for the course when it comes to Z. Over the past 10 days, traders on the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 4.07 times more puts than calls. Likewise, the stock's Schaeffer's put/call open interest ratio (SOIR) has been surging steadily higher of late, and currently stands at 0.98. This ratio arrives in the 72nd percentile of its annual range, revealing that short-term options players are more put-heavy than usual.

Elsewhere, short interest on Z rose by roughly 4% during the most recent reporting period, and now accounts for a staggering 46% of the stock's float.

On the charts, Z isn't faring as terribly as you might assume, based on the glut of negativity levied against the shares. In fact, the Wall Street newcomer is up about 82% year-to-date, and it's lately been guided higher by its 20-week and 32-week moving averages. That said, Z has been having a tough time finding a steady foothold above the round-number $40 level, which may have inspired Wednesday's pessimistic spread strategy.


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