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Pre-Earnings Calls Are the Options of Choice on Groupon

Call volume ticks higher, as GRPN edges lower

by 5/10/2012 11:15:17 AM
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Options players have been piling up on Groupon, Inc. (GRPN - 10.06) calls in recent weeks, as shown by data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In the past 10 sessions, investors have bought to open 23,033 calls on GRPN, versus 20,825 puts. The equity's 10-day call/put volume ratio is currently docked at a call-heavy 1.11.

This apparently bullish bias is also reflected in the stock's Schaeffer's put/call open interest ratio (SOIR). Since May 1, near-term call open interest has jumped 15%, and now stands at 148,245 contracts. With short-term put open interest resting at 102,317 contracts, GRPN's SOIR of 0.69 confirms that speculators prefer calls over puts among options slated to expire within the next three months.

An initial glance at the stock's technical backdrop is fairly depressing. GRPN has struggled on the charts since launching its initial public offering (IPO) last November, and the shares have lost more than half of their value in that time. GRPN's troubles have been highlighted by its 10- and 20-day moving averages, which have ushered the security lower since mid-February. What's more, the stock has tagged a string of new lows recently, with GRPN hitting an all-time nadir of $9.82 as recently as May 4.

Daily Chart of GRPN since February 2012 With 10-Day and 20-Day Moving Averages

In light of GRPN's ongoing technical battle, this recent campaign for calls may simply be the result of short sellers picking up hedges on their bearish bets. In fact, short interest accounts for a healthy 7.3% of the stock's available float.

With GRPN scheduled to unveil its first-quarter results on Monday, May 14, it could be that calls are being purchased by shorts as options-related insurance against a potential earnings-induced rally. The online coupon concern fell short of bottom-line expectations in the previous quarter. Although the company swallowed a steep loss in its fourth-quarter report, analysts are expecting a per-share profit of 1 cent for the quarter.

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