Caveats & Options Active Ahead of Zynga Earnings (ZNGA)

Zynga Inc. (NASDAQ: ZNGA) is set to report earnings today and the call and put option volume is active ahead of the report.  This one has rallied massively ahead of earnings due to the Facebook-effect after the leader in social networking filed for an initial public offering.  On the day that the reports came out that Facebook was going to file “no later than the following Wednesday” these shares have gone from about $9.50 to $14.00 today.

After a 40% run, it is only logical that speculators would start to shift into more put and call options.  On the surface it does not look like there is much difference in volume between put options and call options today.  Puts are actually more active as of NOON EST ahead of earnings with over 25,000 put option contracts traded against over 23,000 call option contracts. 

Where the story gets interesting is that some of the calls appear to be profit taking trades and more of the put option volume appears to be more downside protection or bets against the shares.  That implies more bets against than bets for this one.

With the company representing over 10% of Facebook revenues, the halo-effect is no shock but the amount of that performance is surprising.  Before the news of the Facebook filing this one had been a broken IPO. 

More issues need to be considered here… 1) Zynga does not necessarily benefit in a direct manner from Facebook coming public… 2) Zynga makes virtual farm animals and other social games which many users only play for free… 3) that split share structure gives holders no real representation… 4) the market capitalization per Yahoo! Finance is now $9.8 billion.