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Groupon Inc (GRPN) Option Buyers Concerned About a Pullback

GRPN put options are flying off the shelves today

by 6/17/2013 1:58 PM
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Groupon Inc (NASDAQ:GRPN) shares are on pace to notch a year-to-date closing high, up 1.1% at $7.73. Nevertheless, puts are the options of choice today, with roughly 22,000 contracts exchanged -- more than double the norm. Most notably, traders are circling the out-of-the-money July 6 put, either to bet bearishly or to protect a long stock position.

More than 8,600 July 6 puts have crossed the tape thus far -- 99% at the ask price, suggesting they were bought. Plus, implied volatility is trending notably higher, hinting at fresh initiations.

By purchasing the puts at a volume-weighted average price (VWAP) of $0.08, the bears will make money if GRPN breaches $5.92 (strike price minus VWAP) by July 19, when the options expire. From current levels, this represents expected downside of 23%. Risk, on the other hand, is capped at the initial premium paid for the puts.

As alluded to earlier, the put buyers could be GRPN bulls in disguise. Assuming the traders own shares of Groupon Inc, their primary goal remains for the stock to extend its long-term uptrend. The protective puts simply lock in an acceptable price at which to unload their stake -- $6 apiece -- should GRPN take a turn for the worse in the short term. In other words, the puts could be options "insurance."

Technically speaking, GRPN has advanced more than 59% in 2013, ushered higher atop its 10-week and 20-week moving averages. Despite all that, puts have been picked up at a faster-than-usual clip during the past two weeks on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), as the stock's 10-day put/call volume ratio of 0.67 ranks in the 78th percentile of its annual range. Likewise, just two out of 23 analysts deem GRPN worthy of a "buy" or better endorsement.

Should the bearish holdouts hit the exits, an unwinding of pessimism in the options pits, or a round of bullish brokerage notes, could translate into a contrarian boon for Groupon.


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