Video Game Stock Named 'Best Idea'

Wedbush loves Zynga's current and upcoming video games

Patrick Martin
Aug 27, 2019 at 9:50 AM
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The shares of Zynga Inc (NASDAQ:ZNGA) are up 3.4% to trade at $5.79 this morning, after Wedbush named the video game maker to its "Best Ideas" list. The brokerage firm raved about the company's catalog of titles such as "Merge Dragons!" and "Empires & Puzzles," and noted that upcoming releases could drive growth through 2021. 

The bull note comes at an opportune time for Zynga stock, which heading into today was down nearly 16% from its Aug. 1 seven-year high of $6.65, as political pressure weighed on the video game sector. However, the shares seem to have found a springboard at their 160-day moving average, and are still up more than 45% in 2019. 

Short sellers continue to flock to the equity. Short interest increased by 72.8% in the two most recent reporting periods, to 71.95 million shares, the most since May 2015. This accounts for a healthy 8.4% of ZNGA's total available float, and 3.8 times the equity's average daily trading volume -- representing an ample amount of buying power that could hit the market, should the security keep climbing. 

Over in the options pits, calls dominate the picture. In the last 10 days, 23,589 long calls crossed at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), compared to just 1,259 puts. Plus, this ratio ranks in the elevated 79th percentile of its annual range, pointing to a greater-than-usual clip of call buying over put buying in the last two weeks. Given the amount of short interest tied up in the stock, it's possible some of this call buying -- particularly at out-of-the-money strikes -- could be shorts hedging against any additional upside.

The good news for options buyers -- regardless of motive -- is that the video game stock's near-term options are attractively priced. Zynga's Schaeffer's Volatility Index (SVI) of 36% is in just the 13th percentile of its annual range. In simpler terms, short-term options are pricing in relatively tame volatility expectations for ZNGA at the moment.


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