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Option Bulls Make a Beeline for Zynga Inc (ZNGA)

ZNGA fans are flocking to front-month call options

by 2/25/2013 10:23 AM
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The shares of Zynga Inc (NASDAQ:ZNGA - 3.65) rocketed out of the gate today, attracting a crop of fresh option bulls. So far, the online social gaming concern has already seen roughly 40,000 calls cross the tape -- about four times its average intraday call volume, and more than nine times the number of ZNGA puts exchanged.

Garnering the most attention is the March 3.50 call, which has seen more than 10,600 contracts change hands at a volume-weighted average price (VWAP) of $0.32. The majority of the calls traded on the ask side of the tape, and implied volatility was last seen 8.7 percentage points higher, pointing to newly bought bullish bets.

By purchasing the calls to open, the buyers will profit if ZNGA conquers the $3.82 level (strike plus VWAP) by the closing bell on Friday, March 15, when front-month options expire. Currently, the options' delta stands at 0.61, implying a 61% chance of finishing in the money -- much better than Friday's closing delta of 0.36. However, even if ZNGA doesn't topple breakeven within the next few weeks, the most the bulls can lose is the initial premium paid for the calls.

Even before today's rally -- inspired by legalized state-to-state online gambling agreements in Nevada -- the options crowd was growing increasingly optimistic. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open more than five ZNGA calls for every put during the past two weeks. In fact, the equity's 10-day call/put volume ratio of 5.50 ranks in the 66th percentile of its annual range, pointing to a healthier-than-usual appetite for ZNGA calls over puts of late.

At last check, ZNGA has added 14.5% to wink at the $3.65 level. What's more, the stock is on pace to end atop its 200-day moving average for the first time ever.


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