Zillow, Inc. (Z) Options Hot Amid M&A Buzz

Zillow Inc (Z) reportedly got FTC approval to merge with Trulia Inc (TRLA)

Jan 23, 2015 at 1:53 PM
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Online real estate concern Zillow Inc (NASDAQ:Z) is back in triple-digit territory for the first time in a week, up 11.6% at $109.25. Shareholders are applauding reports that the Federal Trade Commission (FTC) is backing the company's deal to scoop up Trulia Inc (NYSE:TRLA), and options traders are rolling the dice on more upside for Z.

Intraday call activity is running at 10 times the average pace, and has outpaced put volume by a margin of nearly 3-to-1. The stock's 30-day at-the-money implied volatility has jumped 3.2% to 59.1%, pointing to a growing appetite for short-term bets.

Among the most active options is the March 120 call, which speculators are buying to open to bet on a move north of $120 by the close on Friday, March 20, when the back-month options expire. In light of Z's surge, delta on the call has jumped to 0.36 from 0.19 at yesterday's close, implying about a 36% shot of expiring in the money.

Today's affinity for short-term calls is nothing new for Z, though. The equity's Schaeffer's put/call open interest ratio (SOIR) is docked at an annual low of 0.66, suggesting near-term traders haven't been more call-skewed in the past year. Likewise, on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 1.33 registers in the 77th percentile of its annual range, pointing to accelerated call buying over put buying of late.

However, considering 46.3% of Z's float is sold short, some of those calls -- especially at out-of-the-money strikes -- could be attributable to short sellers looking for a hedge. Should any shorts hit the exits in the wake of today's news and subsequent jump, Z could enjoy additional tailwinds. At the equity's average pace of trading, it would take 13 sessions to buy back these bearish bets.

Technically speaking, Zillow Inc (NASDAQ:Z) is now in positive year-to-date territory, up 2.8%. What's more, the equity is on pace to end north of its 80-day moving average -- which has stifled rally attempts over the past few months -- for the first time since early September.

Daily Chart of Z since August 2014 with 80-Day Moving Average
 

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