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Groupon Inc (GRPN) Traders Eye End-of-Week Gains

Friday's Groupon Inc call buyers may have been hedging against additional upside

by 6/16/2014 10:22 AM
Stocks quoted in this article:

Option Brief: Groupon Inc (NASDAQ:GRPN) popped 4% on Friday -- one of several stocks to benefit from Priceline Group Inc's (NASDAQ:PCLN) agreement to buy OpenTable Inc (NASDAQ:OPEN). At the same time, options volume ran at a faster-than-usual pace; by the end of the session, 26,000 contracts were on the tape, compared to an expected daily volume of 16,000. Against this backdrop, the stock's 30-day at-the-money implied volatility shot 6% higher to 48.4%, signaling strong demand for short-term options.

Along those lines, GRPN's most active strike was the out-of-the-money June 6.50 call, where just over 4,000 contracts (including a block of 1,900) traded -- 80% at the ask price, suggesting they were bought. Open interest grew considerably over the weekend, as well, making it safe to assume the bullish bets were freshly minted at a volume-weighted average price (VWAP) of $0.09.

In short, Friday's traders expect the shares to rally beyond $6.59 (strike plus VWAP) by this Friday's close, when the front-month contracts expire. Gains will rack up north of that breakeven mark, while the most the speculators have on the line is the initial premium paid, should the contracts remain out of the money through expiration. Of course, given that 15.5% of Groupon Inc's (NASDAQ:GRPN) float is sold short, a portion of Friday's call buyers may have picked up the options to serve as hedges against a strong move to the upside. In early trading, the shares are 1% higher at $6.30.


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