ZNGA Goes Hard To Borrow
ZNGA Goes Hard To Borrow
As the market winds up for the big Facebook IPO, the other Social Networking stocks are showing signs of a strain. This blog has covered Groupon (GRPN) and some of the stock borrowing issues facing names with relatively small floats. ZNGA has a relatively generous float compared to its other Social Media stocks, so the borrow issues were not too bad. But the markets, like the weather in Chicago, change hour to hour, day to day. ZNGA has had a nice run, and the shorts are starting to really pile in. Take a look at the chart of ZNGA now that the name has gone a bit hard to borrow.
Notice the change in ìtoneî of the gaps and then the hard sell offs. This is typical hard to borrow action and could portend a more volatile future as the short struggle to maintain positions in front of the froth. The hard to borrow is easy enough to follow. Just look at the ATM combinations and price them by buying a call and selling a put the liquidity providerís way (buy a call on the bid and sell a put on the offer). Add the debit or credit to the strike, and see if the combo is trading under water.
The current combos are trading about .20 underwater, which means buying stock using options in April will save the buyer about .2 relative to the price of the stock. If this degree of borrow starts to grow beyond .20 to .50 or more, be careful as the intra swings could get a bit more nasty.
The Trade:
Look at the borrow rate to see if a squeeze is coming. A protected short delta or backspread play might work nicely here.
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Mark Sebastian is the Director of Eduction for Option Pit, and a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. He is co-host of "Option Block," the wildly popular show on The Options Insider Radio Network.
He has been published in nationally on Yahoo Finance, quoted in the Wall Street Journal is a featured contributor for TheStreet.com. He also writes regularly for SFO, and OptionsZone, and is the managing editor for Expiring Monthly: The Option Traders Journal.
To learn more about Option Pit and its mentoring services, please visit OptionPit.com
About Mark Sebastian
Mark Sebastian is a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. Along with his role directing the path of education for Option Pit, Mark is currently the director of risk for a private hedge fund. He writes a daily blog, the Option Pit blog, formerly Option911. Sebastian has been published nationally on Yahoo Finance, Google finance, Financial Times Alphaville and is a featured contributor for TheStreet.com. He is also published regularly at SFO, the Options Insider, and is one of the Co-Hosts of The Option Block Podcast, a featured Podcast from Options Insider Radio. Mark is the managing editor for Expiring Monthly: The Option Traders Journal. Sebastian has a Bachelor's in Science from Villanova University.
To learn more about Option Pit and their mentoring services, please visit: http://www.optionpit.com
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