King Digital Entertainment PLC (KING) Traders Eye an End-of-Year Rally

King Digital Entertainment PLC December options were popular on Tuesday

Dec 10, 2014 at 10:33 AM
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Calls have been the options of choice on King Digital Entertainment PLC (NYSE:KING) in recent weeks. In fact, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 57.88 calls for every put over the past 10 sessions.

On Tuesday, calls crossed the tape at a rate 1.8 times the daily average, and outpaced puts by a 7-to-1 margin. A number of speculators targeted the front-month series, and the stock's 30-day at-the-money implied volatility (IV) soared 8.6% to 69.4%, reflecting the growing demand for near-term contracts.

Specifically, the December 17 and 20 calls saw a collective 4,807 contracts traded. The majority of these did so on the ask side, IV jumped, and open interest rose at both strikes overnight, making it safe to assume new positions were purchased.

Based on KING's current perch at $17.55, the lower-strike calls are already in the money (ITM). The options market seems fairly confident the stock will be north of $17 at the close on Friday, Dec. 19, as delta on the call is docked at 0.63. Meanwhile, considering KING hasn't toppled the round-number $20 mark since late July, delta on the higher-strike call is perched at a slimmer 0.19.

Technically speaking, KING has made some volatile moves since going public in late March, with the shares sitting roughly 14% below their IPO price of $20.50. More recently, though, the stock has rallied 64.3% from its Oct. 14 all-time low of $10.68. With 21.6% of King Digital Entertainment PLC's (NYSE:KING) float sold short, a portion of the recent call buying -- specifically at out-of-the-money strikes -- may have been at the hands of shorts hedging against any additional upside.

 

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