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Some King Digital Entertainment PLC call buyers may be short sellers in disguise
King Digital Entertainment PLC (NYSE:KING) is up 2% this afternoon at $11.50, but remains a long way from its March IPO price of $20.50. Nevertheless, the positive price action is luring options traders to the table -- especially on the call side, where volume is running at nearly quadruple the expected intraday rate.
Digging deeper, the two most active strikes are the November 12.54 and 11.54 calls, where 1,911 and 629 contracts have traded, respectively -- mostly at the ask price, suggesting buyer-driven volume. Opening activity is a possibility at the higher-strike call, according to Trade-Alert -- which speculates short sellers may be initiating the positions to act as hedges, ahead of KING's upcoming earnings report, the night of Thursday, Nov. 6. Meanwhile, buy-to-open action is more clear-cut at the lower-strike call, as volume outstrips open interest.
As alluded to, King Digital Entertainment PLC (NYSE:KING) -- maker of "Candy Crush Saga," and as of yesterday on Facebook Inc (NASDAQ:FB), "Candy Crush Soda Saga" -- has been a technical disaster since publicly debuting. In fact, the shares have underperformed the broader S&P 500 Index (SPX) by 40 percentage points during the past three months. It's no wonder, therefore, that one-quarter of KING's total float is sold short.