×

Options Trader Bets Zynga Will Zing Higher

Zynga
Getty Images

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.

—No disclosures

Brian Stutland is Managing Member of Stutland Equities and a contributor to CNBC's "Options Action."

Latest Video

Tutorials

Host Bio

  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

Options Action Traders

From Our Sponsor

Options Action Newsletter:

Sign up to receive exclusive Options Action content. Each month you'll receive an exclusive message from host Melissa Lee and insight directly from one of the members of our Options Action panel. Keep your pulse on the market with the Options Action newsletter.

Please enter a valid email address
To learn more about how we use your information, please read our Privacy Policy.