Options Trader Bets Zynga Will Zing Higher
President, Stutland Equities
Shares of Zynga popped 10 percent Monday on rumors that it could be a takeover target. This set option traders into a call buying frenzy, with triple the average daily volume changing hands on Monday.
One of the biggest trades of the day was the purchase of 1,129 April 4.5-strike calls for $0.22, which was done with the stock at $3.90. This is a bullish bet that the stock will close above $4.72 at April expiration—an increase of 21 percent.
Last year, Zynga traded up to a high around $15.91 per share before plummeting a staggering 83 percent to close 2012 at $2.63. However, the stock is up 50 percent this year, making it a top performer. Traders, like this call buyer, were speculating on Monday that Yahoo could buy Zynga, which would be a catalyst for the stock to continue its rally into April expiration.
But is a buyout by Yahoo really in the cards?
Marissa Meyer's goal is to integrate Yahoo into its users' daily habits, so the real question is this: Do Zynga's games fall under the category of "daily habits"?
Yahoo does have a games site, but it does not attract the traffic it once did. Zynga is trying to figure out how to monetize its web-based games, and if it is successful, would be a valuable asset to Yahoo. But unless Yahoo has its own plan for how to accomplish this, a Zynga buyout is unlikely.
Buying these calls is a speculative trade, and one that I am going to steer clear of for the moment.
Zynga has the potential to make a lot of money if it can capitalize on online gambling, which was recently legalized in Nevada and New Jersey. But I would prefer to wait and see what the future holds for the company before buying calls or stock, especially after a 50 percent rally in a matter of weeks.
—Brian Stutland is Managing Member of Stutland Equities and a contributor to CNBC's "Options Action."