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The shares of Groupon Inc (NASDAQ:GRPN - 5.93) have added about 7.3% so far in February, but seem to have stalled right beneath the $6 region. Nevertheless, the options crowd is anticipating even more upside for the coupon concern, as evidenced by yesterday's appetite for short-term calls.
By the closing bell, GRPN had seen roughly 34,000 calls cross the tape -- more than twice its typical daily volume, and close to seven times the number of GRPN puts exchanged. Digging deeper, speculators established new positions at the weekly 2/22 6-strike call and March 7 call, which each saw significant overnight increases to open interest. Plus, the majority of the calls traded at the ask price, suggesting they were bought.
By purchasing the weekly calls at a volume-weighted average price (VWAP) of $0.18, the buyers expect GRPN to muscle atop the $6.18 level (strike plus VWAP) by the end of the week, when the options expire. As of yesterday's close, delta at this option was 0.43, implying a 43% chance of finishing in the money.
Meanwhile, the VWAP of the March-dated calls was $0.27, indicating a breakeven of $7.27 for the buyers. This out-of-the-money option finished with a delta of 0.29, or 29%, suggesting a roughly 1-in-3 chance of moving into the money by the closing bell on Friday, March 15, when front-month options expire. However, even if GRPN remains south of the strike following its earnings next week, the most the buyers can lose is the initial premium paid for the calls.
Technically speaking, the shares of GRPN have outperformed the broader S&P 500 Index (SPX) by almost 39 percentage points during the past three months. Against this backdrop, it's no surprise to find that option buyers have been ramping up their bullish exposure. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open almost 10 GRPN calls for every put during the past two weeks. In fact, the resulting 10-day call/put volume ratio of 9.64 stands just 9 percentage points from a 52-week peak, pointing to a healthier-than-usual preference for long calls over puts.
Likewise, the stock's Schaeffer's put/call open interest ratio of 0.52 indicates that calls nearly double puts among options expiring within three months. What's more, this ratio ranks in the seventh percentile of its annual range, implying that near-term options players are more call-skewed than usual right now. More specifically, peak call open interest in the newly front-month series stands at the aforementioned March 7 strike, with about 15,500 contracts in residence. Meanwhile, the March 6 strike is home to more than 14,500 calls outstanding. In the near term, this abundance of bullish bets could exacerbate resistance in the $6-$7 neighborhood.
As alluded to earlier, Groupon is set to take the earnings stage on Wednesday, Feb. 27. Historically, the company has matched or exceeded analysts' bottom-line estimates in each of the past three quarters. For the most recent quarter, Wall Street is calling for a per-share profit of 3 cents.