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November 12, 2013  Tue 12:15 PM CT

ZNGA: SEE CHART GET CHAIN FIND STRATEGIES
A huge call sale is betting that any gains in Zynga will be limited.

optionMONSTER systems show that more than 50,000 December 3.50 calls have traded, led by a huge block of 47,015 sold for the bid price of $0.21. The previous open interest was just below 35,000, so this is a new position.

The call selling sees little to no upside in ZNGA in coming weeks. Our scanners did not find any corresponding trading in the underlying shares today, but given how close the strike is to the stock price, these options were very likely sold against an existing long stock position in a covered-call position. (See our Education section)

ZNGA is up 0.87 percent to $3.46 in afternoon trading. The social-game company was briefly above $4 on Oct. 27 after reporting earnings but was below $3 heading into September.
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Education & Strategy

Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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