Unusual Options Activity: Zillow (Z)

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  • Real estate listing firm Zillow (Z) saw shares soar to $200 before dropping back down to $120. Now, with shares on the rise to $140, one trader is betting on a move higher.

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  • That’s based on the September $120 calls. With 162 days until expiration, the option is about $20 in-the-money given the recent price of $140. Over 10,100 contracts traded compared to a prior open interest of 133, for a 76-fold rise in volume.

    The trader paid about $33 for the option.

    Shares are up more than 250 percent in the past year.  While the real estate company isn’t yet profitable, the company has been trending toward profitability in recent quarters. A strong national real estate market in the past year looks likely to continue, which should continue to move the bottom line.

    Action to take: The deeply in-the-money trade is unusual, and a sign that the trader is looking for a strong return with some downside protection. With the trade about $20 in-the-money, the real cost in terms of time premium on the option is about $13. If shares continue to rally, say back to their old highs of $200, the option could more than double to $80.

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  • The option is an attractive play on a strong real estate market that’s likely to continue this year. Traders with less capital to put to work can use a higher strike price, which will cost less up front.