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Bullish Groupon Inc (GRPN) Speculator Bets on a Breakout

One GRPN speculator bought an intermediate-term bull call spread

by 9/26/2013 3:24 PM
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Groupon Inc (NASDAQ:GRPN) is continuing its impressive run today. Having gained more than 145% in 2013 so far, the Internet stock is up 3.2% this afternoon to rest at the $12.07 level, handily outperforming the sluggish broad market. Option players are jumping on board, with one looking ahead to the end of the year for further gains. About 36,000 call options have traded in GRPN today, representing a 78% mark-up to what's typically seen.

Accounting for a healthy portion of this volume was one large spread trade that crossed the tape shortly after noon. Matching blocks of 6,000 contracts traded at the December 12 call and December 15 call, trouncing existing open interest at both strikes. The 12-strike call traded at the ask price of $1.76 per contract, while the 15 call traded at the bid price of $0.78 per contract. In short, it appears one trader opened a bull call spread for a net debit of $0.98 per pair of options. The net debit also represents the most this trader can lose, if Groupon is trading below the $12 mark when the options expire on Dec. 20.

Gains, meanwhile, are capped at $2.02 (the difference in strike prices, less the net debit), and are achieved if GRPN is trading at or above $15 at expiration. (Of note, GRPN has not traded north of this area since April 2012.) In order for the spread to yield any gains as the options expire, GRPN needs to be sitting north of breakeven at the $12.98 mark (the long call strike, plus the net premium paid).

One reason for buying a bull call spread is to offset the price of the long call by collecting a credit on the sold option. Implied volatility for the 12-strike call has popped to 75.6%, versus the stock's three-month historical (realized) volatility of 57.1%. In other words, the premium is a bit inflated at this strike. Among short-term options, however, prices are still relatively low (from a historical perspective). Schaeffer's Volatility Index (SVI) for Groupon Inc (NASDAQ:GRPN) stands at 55%, which is lower than 92% of other readings taken during the last year.

Option Briefs offer a concise look at recent notable trading activity. For more in-depth coverage of securities from an Expectational Analysis perspective, please visit our Trading Floor Blog section.


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