Options Traders Overlook Uptrending Zillow Group, Inc. (ZG) Stock

Options traders have mostly ignored Zillow Group, Inc. (NASDAQ:ZG), but the stock could be set to rally after next week's earnings event

by Josh Selway

Published on Feb 3, 2017 at 11:25 AM

Last week, we highlighted ONEOK, Inc. (NYSE:OKE) as an energy stock that could surprise Wall Street. Since then, the shares have grinded higher, adding 2.3%. This time around, we're looking at online real estate marketplace Zillow Group, Inc. (NASDAQ:ZG). While ZG does not typically see much options trading, history suggests the shares could rise in the coming days, especially with earnings just around the corner. 

First of all, ZG has been climbing the charts since last February, notching a series of higher lows in the process -- and sporting a year-over-year gain of 82% to trade at $36.24. The stock recently pulled back its rising 160-day moving average, a trendline that's provided strong support in recent months. In fact, data from Schaeffer's Senior Quantitative Analyst Rocky White shows that Zillow stock has gained on a 21-day time frame following three of the past four times it's neared this moving average in the last three years, averaging an 11.1% return.  

Zillow stock chart

As mentioned, Zillow earnings are due out after the close next Tuesday, Feb. 7, which may be a good sign for bullish traders. For instance, the equity has moved higher in the session subsequent to the company reporting in two of the past three quarters, including a 5.6% jump after the last release in early November. But options traders have paid little to no attention to ZG. Total options open interest resides in just the 3rd annual percentile, with 16,341 contracts outstanding, and just 14 calls bought to open during the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- compared to zero puts. 

One group that has targeted the security is short sellers, who control a whopping three weeks' worth of buying power, going by average daily volumes. And this is despite the fact that short interest took a sharp drop in early December -- which happened to correspond with a sharp rise in the share price. Considering short sellers still control a notable portion of ZG shares, there's certainly potential for a continued short-covering scenario to lift the stock. 

Zillow short interest

Finally, it should also be noted that any upward move from Zillow Group, Inc. (NASDAQ:ZG) has the potential to draw bullish attention from the brokerage crowd -- especially since the shares have already put in an impressive performance over the past year. At the moment, nine of 15 analysts are sitting on the fence with a "hold" recommendation, and an earnings beat could persuade them to upgrade their ratings. 

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