Skip to main content

Morning Update

Yesterday shares of Zynga popped 10% 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 yesterday. One of the biggest trades of the day was the purchase of 1129 April 4.5 calls for $0.22 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%.

Last year Zynga traded up to a high around $15.91 per share before plummeting to close 2012 at $2.63, a loss of 83%. However, so far the stock is up 50% year to date making it a top performer. Traders like this call buyer were speculating yesterday that Yahoo could buy Zynga, which will 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 user’s daily habits, so the real question is does 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 these web based games, and if it is successful would be a valuable asset to Yahoo. But unless Yahoo has its own plan of 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 a lot of potential if it can monetize its games or 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% rally in a matter of weeks.


Anonymous said…
Could you help me here, please.
If the VIX March futures are no longer accounted for VIX spot calculation, April and May are in play, why at the March futures expiration, on March 20th, its price must be equal to the SPOT VIX? Is it mandatory, or could the market close on the 20th, with the VIX SPOT > March Future?


José Fonseca

Popular posts from this blog

Wake Me Up When September Ends

The fiscal year for the U.S. Government ends September 30th, 2017. Which is something market participants could care less about if not for, sometime near that date, Congress needs to raise the debt ceiling. Missing that deadline would result in a self-inflicted financial wound that would send shock-waves throughout global markets.  The U.S. Government has been paying off debt since the Andrew Jackson administration without missing a single payment. Raising the debt ceiling is a routine vote.

In fact, with the polarized Washington we have seen in recent years, it is happening a lot more frequently, as Congress has only once passed a budget in the past eight years. In lieu of a budget, Congress passes what is known as a continuing resolution.  A continuing resolution is a type of legislation in which Congress decides to let last year’s budget continue as this year’s budget. Nevertheless, a continuing resolution is incomplete, as it does not allow for the government to spend the money a…

I would like to bet ten tens on the tenth horse in the tenth race, please.

"I would like to bet ten tens on the tenth horse in the tenth race, please."

Last summer, on a warm cloudy day June 11, 2016 in Elmont New York, a good friend of mine (Rob) confidently walked up to the cashier at Belmont and spoke those famous words.  Ten Tens on Ten in the Tenth Race.  In fact, it had been decided it months earlier. We had been discussing hosting his bachelor party in New York, go to the Belmont Stakes, and watch a Yankees vs Tigers game and Rob convinced the group to go to New York by proudly proclaimed his prophecy.  I had almost forgotten about this bold prediction when I witnessed him at the register, but when I looked up, and saw Flintshire, the 10th horse in the race upcoming race was the favorite.  “What could possibly go wrong?”  I thought to myself (an options trader who bought a racing program attempting to handicap and gain an ‘edge’ in the previous nine races unsuccessfully).  I went to a pretzel vendor and changed 5 twenties into ten tens, wal…

Is the KCJ Foreshadowing a 2008 Repeat?

The CBOE Correlation Index (KCJ) is close to the lowest level we have seen since it was first listed in 2007. The KCJ measures the implied movement of the S&P 500 components options, compared to the implied movement of the S&P 500 index options. Simply put, the higher the number, the more likely all stocks are going to move together. Conversely, a low number will be characterized by sector rotation, and flat markets; one sector moves higher, another moves lower. 
Correlation, for lack of a better term, is correlated with volatility. Not surprisingly, 30-day S&P 500 historical volatility is near the low level of 6.5%. Currently at 33.5, KCJ is sitting close to rock bottom, lower than where it was in 2007, (but not lower than where Lindsay Lohan was in 2007). 
So far this year, the market has been able to grind higher, characterized by leadership in FANG(Facebook Apple/Amazon, Netflix, Google) and sector rotation. As the summer hit, FANG has slowed with GOOGL and AMZN hitting…