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Groupon Inc (NASDAQ:GRPN) has exhibited notable technical strength of late, and option speculators are starting to pay attention. In the last 10 trading days, nearly 13,400 calls have been purchased to open on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), compared to slightly less than 4,800 puts. The resultant call/put volume ratio of 2.80 is higher than 61% of the past year's readings, suggesting the demand for long calls is slightly above average.
A broader scope, however, reveals a different picture. Schaeffer's put/call open interest ratio (SOIR) for GRPN weighs in at 1.22. In other words, put open interest across the front three months outweighs call open interest by a margin of roughly 6-to-5. What's more, the SOIR reading is 12 percentage points shy of an annual peak.
Today, however, the Groupon Inc calls have taken the spotlight. More than 6,300 calls have already changed hands, outpacing what's typically seen at this point in the trading day by 35%. Most active by a long shot is the weekly 5/3 6.5-strike call, as nearly 3,700 contracts have traded at a volume-weighted average price (VWAP) of $0.15, easily trumping existing open interest. Two-thirds of these contracts traded at the ask price, and implied volatility has spiked more than 16 percentage points, suggesting much of this activity may be of the buy-to-open variety.
While the call buyers can choose to exit their positions at any time between now and Friday's close, when the weekly bets expire, the breakeven price at expiration is $6.65 (strike plus VWAP). From Groupon's current perch of $6.34, it would need to gain roughly 4.9% between now and then, in order for the traders to be profitable as the calls expire. Delta on this call currently stands at 0.38, giving the position a slightly less than 2-in-5 chance of expiring in the money. If GRPN doesn't surmount the 6.5 strike by Friday's closing bell, though, today's call buyers lose only the premium paid.
Since hitting an all-time low of $2.60 in mid-November, Groupon shares have staged an impressive recovery, gaining more than 140% off this nadir. In 2013, the stock is up roughly 30%, and it has outperformed the S&P 500 Index (SPX) by 20 percentage points during the last 40 days. What's more, GRPN ended March above its 10-month moving average, for the first time since the moving average's inception.
Groupon will share its next earnings report after the close on Wednesday, May 8, meaning today's weekly call buyers will no longer be holding their positions once this news hits. Analysts are expecting the daily deals website to earn 2 cents per share, one penny better than year-ago results. Today, the stock has moved slightly lower, possibly in sympathetic reaction to news that top competitor LivingSocial was compromised by a cyber attack over the weekend.