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Groupon Inc (GRPN) Option Prices Hit Historical Lows

Groupon Inc options are priced at historical lows, and calls have been notably active of late

by 5/23/2014 11:36 AM
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Groupon Inc (NASDAQ:GRPN) has dropped roughly 48% in 2014, and has underperformed the broader S&P 500 Index (SPX) by more than 31 percentage points over the past three months. Still, a vocal contingent is hoping to see a comeback in the shares of the daily deals provider, and is scooping up bullish bets at a bargain.

During the last 10 trading days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 27,231 GRPN calls have been purchased to open, versus 6,120 puts. The resulting call/put volume ratio of 4.45 stands higher than 81% of all other readings taken during the past 12 months. In other words, demand for long calls -- relative to puts -- has accelerated in recent sessions.

As alluded to previously, speculators who are buying GRPN options (calls or puts) have been able to do so without breaking the bank. The stock's 30-day at-the-money implied volatility has dropped from 54.6% on May 9 to an annual low of 44.2% reached in yesterday's trading. Similarly, Groupon's Schaeffer's Volatility Index (SVI) of 44% sits just 2 percentage points shy of a 12-month low, suggesting short-term options are cheaply priced, from a volatility perspective.

On the charts, despite its struggles this year, GRPN has managed to muscle higher from its annual low of $5.18, reached on May 7 in the wake of its first-quarter earnings report. The stock is now $1 higher at $6.18, having rallied more than 19% during the last couple of weeks.

Some of this upward momentum could be attributed to short-covering activity. During the last two reporting periods, short interest dropped by 37% to 54.3 million shares, as bears have hit the exits (possibly to take profits). There's more where that came from, though, as nearly 12% of Groupon Inc's (NASDAQ:GRPN) float remains sold short.

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