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Option Brief: It's a pretty dreary day for Groupon Inc (NASDAQ:GRPN) shareholders, with the stock off 18.8% after a dismal second-quarter outlook prompted a round of bearish brokerage notes. Amid this post-earnings gap lower, GRPN has been relegated to the short-sale restricted list, causing speculators to flood the equity's options pits -- with overall volume trading at eight times the average intraday pace. Also, in the wake of the company's scheduled announcement, the equity's 30-day at-the-money implied volatility (IV) has plunged 25.9% to 59.2% -- levels not seen since early April.
Not surprisingly, the most active strike of the session falls on the put side -- specifically, the January 2015 5 strike. Roughly 18,900 contracts have changed hands here thus far -- including a block of 10,200 that appears to be part of a two-legged spread with GRPN's January 2015 7-strike put. Meanwhile, data from the International Securities Exchange (ISE) confirms that at least a portion of the day's activity involved "vanilla" put players buying to open the contracts. For those initiating long puts outright, the volume-weighted average price (VWAP) they're paying for the LEAPS contracts is $0.71, making breakeven at January 2015 options expiration $4.29 (strike price less VWAP), or in annual-low territory.
Not everyone expects Groupon's post-earnings hangover to continue, though, as the June 7 call has also received notable attention. Roughly 7,200 contracts have changed hands here -- 86% at the ask price, hinting at buyer-driven activity. The ISE confirms that some of these calls have been bought to open.
Should the stock -- last seen at $5.46 -- fail to reclaim its perch atop $7 by the close on Friday, June 20, when back-month options expire, the most the call buyers stand to lose is the initial premium paid. According to Trade-Alert, the VWAP for the calls is $0.09. However, while this may seem like a modest amount, IV at the June 7 call is currently inflated compared to the stock's 40-day historical volatility (60.2% vs. 35.4%). In other words, premium at this out-of-the-money call is relatively expensive.