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Investors taking a glass-half-full view of Groupon Inc (NASDAQ:GRPN - 5.38) might note that the shares have more than doubled since pegging a record low of $2.60 on Nov. 12. Some of these bulls are scooping up short-term call options today, in hopes that the shares will follow through on recent upward momentum. Other GRPN speculators, meanwhile, are predicting a short-term ceiling for the stock.
First, the weekly 2/8 5-strike calls are active, with nearly 2,400 contracts trading, easily exceeding open interest at the strike. The large majority of the volume traded at the ask price right out of the gate, and implied volatility has zoomed higher. These signs all point to buy-to-open activity.
Because they traded at a volume-weighted average price (VWAP) of $0.32, these calls are a bet that GRPN will continue to sit north of $5.32 (strike plus VWAP) when the options expire at Friday's close. Delta on this option has spiked higher from 67 to 88 today, now reflecting an 88% chance of being in the money at expiration.
Elsewhere, a 1,300-contract block of the March 6 calls changed hands at the bid price of $0.42 per contract. These were tied to a stock purchase, suggesting this was a buy-write strategy. A buy-write is similar to a covered call in all aspects, except that the stock is purchased, and the calls are sold at the same time. These call sellers hope GRPN will not surpass the $6 level through March options expiration, at which point these calls expire worthless.
While it won't impact today's weekly call buyers, the call sellers should be mindful of GRPN earnings, due on Feb. 27 after the close. Analysts are expecting per-share results of 3 cents per share. While the company has narrowly exceeded estimates in the past three reporting periods, the Street's reaction hasn't always been positive. In fact, following its Nov. 8 earnings, the stock dropped nearly 30% the subsequent trading day, as revenue fell short of expectations.
On the broader options front, calls have been notably popular. The 50-day call/put volume ratio -- tracking buy-to-open activity on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- stands at 4.62. In other words, during the past 10 weeks, just 100 puts have been purchased to open for every 462 calls. As my colleague Andrea Kramer pointed out earlier this week, excessive call volume isn't rare on low-priced stocks, as the potential gain for long puts is limited by how far the stock can fall before it hits zero. Still, this 4.62 reading is higher than 99% of all volume ratios recorded during the past 12 months.
Similarly, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.47 shows that call open interest outweighs put open interest by a margin of more than 2-to-1 among options expiring within the next three months. This reading is just 3 percentage points above a new annual low.
GRPN shares have added more than 5% today, despite any notable news. If the stock fails to keep this trend alive, however, today's call buyers have risked only the premium paid.