FB unlikes ZNGA

If you are tired like I am of hearing about the weekly saga of what passes for government on Capitol Hill there is always headline financial news to come back to.  The volatility market is locked in a day trade of who says what and when with regards to the debt and deficit so that pretty much kills any trending volatility trade.  One stock that has been on a tear recently is Facebook (FB) and the opposite trajectory is Zynga ( ZNGA).

FB I think is going to continue to run.  The volatility is cheap in there and buying calls seems like the easy trade.  ZNGA is getting interesting because it is trading for just a shade over its cash on hand.  Also note the activity today fresh on the news that ZNGA will be just like any other game at FB.  Namely the two companies appear to be severing their special relationship.  Maybe ZNGA will be free to pursue other options in the Social Network space.  That news did cause things to shake a bit.  Implied Volatility jumped about 15% ATM in both Jan and Mar on the news with options trading twice the 20 day average volume per strike at the 2.5 line.  That is a gamma like trade so some movement is expected.



Charts by OptionVision

This OptionVision View shows mostly active call buying meaning while the stock might be down a .1 on the news; paper is buying calls betting on a ride up. Sometime a stock does not move much but the options move a lot.  I think I would just sell the OTM puts down at this level.  On this occasion I think divorce might be a good thing.  At least the call buyers think so.

The Trade

I like selling OTM puts in ZNGA for the 2.5 and 2 strikes out to March.  While this is short gamma I want to sell the higher volatility to get long ZNGA.  If ZNGA pulls back work into a risk reversal for a credit buying just the near OTM calls.  I like buying calls or backspreading  FB when the IV hits 45% or below with 30 days to expiration.


I have a ZNGA and FB position.


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