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Groupon Inc (GRPN) Traders Set a Short-Term Floor

Traders sold to open Groupon Inc April 7 puts yesterday

by 3/19/2014 10:35 AM
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Since gapping lower on Feb. 21 on lackluster fourth-quarter earnings, Groupon Inc (NASDAQ:GRPN) has been churning in the $8.25-to-$8.75 range. A group of option traders yesterday bet on this trend to continue by selling to open the stock's April 7 puts.

Specifically, nearly 2,150 contracts -- including a sweep of 1,796 -- traded at this out-of-the-money strike. The majority of the volume crossed at or below the bid price, and nearly all of it translated to open interest overnight, suggesting the puts were written to open. In so doing, the traders expect GRPN shares to remain perched above $7 -- a level not breached since last June -- through options expiration on Thursday, April 17.

If the stock meets those expectations, then the puts will expire worthless, and the sellers will retain 100% of the initial premium collected. However, if GRPN plunges below the strike from its current perch at $8.29, then the traders could be assigned, and forced to buy the shares for $7 apiece no matter how far they've fallen.

Taking a step back, put selling has been popular in Groupon Inc's (NASDAQ:GRPN) option pits of late. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), nearly two puts have been sold to open for each one bought to open during the past two weeks.


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