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Option Trends: Groupon Inc and RetailMeNot Inc

Call buyers have pounced on GRPN, while put buyers are looking toward SALE

by 5/27/2014 12:00:37 PM
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Options players have differing opinions on a pair of online destinations for bargain seekers: daily deals provider Groupon Inc (NASDAQ:GRPN) and digital coupon aggregator RetailMeNot Inc (NASDAQ:SALE). Per data from three major options exchanges, traders have been bullishly skewed on Groupon of late, while making bearish bets against RetailMeNot. Here's a look at recent options activity on these two names.

During the last five days in the Groupon Inc options pits, speculators have bought to open 9,936 calls on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE), versus just 1,306 puts, resulting in a call/put volume ratio of 7.61. When adding in data from the NASDAQ OMX PHLX (PHLX) and expanding the scope to 50 trading days, the bullish skew remains. Specifically, the 50-day call/put volume ratio of 4.34 stands higher than 95% of all other readings taken during the last 12 months. In other words, there has been an increased demand for long calls of late.

Schaeffer's Volatility Index (SVI) for Groupon Inc (GRPN) since February 2014

As recently noted, it's been a good time for GRPN options buyers to open their wallets, in terms of premium pricing. The stock's Schaeffer's Volatility Index (SVI) has slumped to 44%, just 2 percentage points shy of an annual low. This suggests short-term options are inexpensive, from a volatility perspective.

On the charts, however, the last 50 days (and counting) have seen Groupon Inc (NASDAQ:GRPN) struggling. Year-to-date, the stock has shed more than 46% and has endured a couple of notable bear gaps. Since hitting an annual low of $5.18 on May 7, though, the stock has been trying to recover, gaining more than 21% to rest at $6.28. If the stock is unable to make further headway in the short term, however, some of the bullish options traders may start to change their tune.

RetailMeNot Inc shares have faced a similar struggle, underperforming the broader S&P 500 Index (SPX) by nearly 45 percentage points during the last three months, and giving back almost 48% since notching an all-time high of $48.73 on Feb. 27. At $25.17, SALE is actually hovering within 20% of its initial public offering price of $21. (SALE debuted for public trading last July.)

But while Groupon speculators are hoping to see a recovery, SALE traders have been betting against the stock. At the ISE during the last five days, 3,199 puts have been purchased to open, versus 148 calls, for a put/call volume ratio of 21.61. What's more, the 10-day ISE/CBOE/PHLX put/call volume ratio stands at 1.51, indicating that three puts have been scooped up in the last two weeks for every two calls. In a similar vein, the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.33 reveals that put open interest (for options expiring in three months or less) outweighs call open interest by a 4-to-3 margin.

In what could prove to be unwelcome short-term news for these put buyers, SALE could be due for a comeback. Last Thursday and Friday, the stock closed south of its lower Bollinger Band, and its 14-day Relative Strength Index (RSI) reading is at 30, representing oversold territory. In fact, SALE is trading nearly 5.5% higher today.

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