Wednesday, April 3, 2013

Aqumin Volatility Newsletter 04/03/2013 - $ZNGA

Hold‘em with ZNGA

As I sit watching the market sell off a little bit I am reminded that stocks are just a game of numbers. We get good numbers and we rally and we get mediocre numbers and we tank. The jobs number was not great this morning and we tanked. Most of the jobs numbers have just been ok anyway so I guess it was time for a miss. The fact that we are getting closer to what the new health care bill has in store for employers is probably not helping. The number missed and we sold off. So when a stock does not sell off into a broad market decline I notice.

Take ZNGA today. The name has been a poster child for everything wrong with a public social media company. Yet it is still here. I have followed it for most of the year and got real interested in it when it started trading for the cash + property value of the company in mid-November. It got real interesting when some states started to allow certain forms of internet gambling and ZNGA already had a presence in the non-cash space. ZNGA started to take cash bets in Great Britain today. That could start moving to the USA relatively fast. The good thing for ZNGA is they are not tainted by the 15 years or so of offshore online gambling business. They come in clean with the latest technology.

Looking at how the volume is dispersed on my OptionVision™ landscape, most of the trade centered around the May 3.5 calls. The Apr cycle actually had some volatility go down. The May calls are the cycle that contains the earnings announcement and will have a little more room to run should the online gambling thesis keep working.

4-3-2013 3-52-24 PM

I think the volume is looking for more upside in this name and not just on the short pop we got this morning. ZNGA traded as high as $4 with just the potential of moving into cash gaming 3 weeks ago so I don’t think that is a stretch. It looks like a lot of paper sees it that way to. I like the idea of selling OTM put spreads in here in the May or Jun cycle. I don’t think the transformation will be over night and the higher IV is nice to collect while the company puts it all together.

I have a position in ZNGA.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

No comments:

Post a Comment