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TheStreet Open House

11 Stocks That Could Soar Off Zynga's IPO

Sky-Mobi

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As we move closer to an IPO for Zynga, I would definitely have Sky-mobi (MOBI) on your radar. This mobile application store in China operates mobile social games and provides applications and content with social network functions to its registered members. The stock is up over 60% so far in 2011, but shares of dropped sharply from their 52-week high of $23.25 to the current price of around $8.80.

Much of that decline in Sky-mobi is due to a number of targeted bearish reports from a firm called Citron Research. Citron has claimed that Sky-mobi doesn't have the market position it says it has and that more than 80% of its registered members are inactive. Sky-Mobi, in turn, has refuted those claims. Also, Piper Jaffray just came out and defended Sky-Mobi and increased its price target to $12 to $15 a share, saying the concerns over the company's fundamentals are overblown.

Frankly, I don't care who is right here. What I do care about is if the stock is about to short-squeeze and run-up big in front of the Zynga IPO. I am a trader. I only concern myself with the price action. I let the rest of the market fight it out and create drama on stocks. In fact, Sky-mobi is so heavily shorted it might be the biggest winner as Zynga comes to market.

The bears just upped their short bets on this stock in a big way from the last reporting period to a total of 1.73 million sold short. Short positions increased by an unreal 210.8%, or by around 1.1 million shares, as of May 13. This stock only has 7.25 million shares in the tradable float, so that puts the short interest at around 24%.

I would play this name with some near-the-money or out-of-the-money call options a few months out so you can limit your capital at risk in case this stock isn't done downtrending. I would look to stop out of the trade if it falls below $8 a share, since the stock recently found some buying support around that level.

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