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Groupon Inc (NASDAQ:GRPN) is preparing for its turn in the earnings confessional on Wednesday afternoon, and option traders are stacking the deck with short-term bullish bets. In midday trading, overall call volume is running about four times heavier than usually, with roughly 25,000 options on the tape.
Nearly half of this volume has traded at one strike -- the weekly 5/10 6-strike call, where the 12,000 contracts traded easily trumps existing open interest. A number of mid- to large-sized blocks (300 to 500 contracts each) have gone off at the ask price, and all told, 60% of today's volume at this out-of-the-money strike crossed at the ask, for an overall volume-weighted average price (VWAP) of $0.28.
Implied volatility has shot up more than 61 percentage points to 184.2%, well above Groupon's one-month historical volatility measure of 43.7%. This -- along with the number of trades going off at the ask price -- is indicative of buy-to-open orders. In short, option players are wagering on short-term upside for GRPN, and are likely hoping Wednesday's earnings report helps boost the shares.
Breakeven at expiration on Friday afternoon is $6.28 (strike price plus VWAP), or 12.5% north of the stock's current price of $5.58. The at-the-money (5.50 strike) straddle expiring this Friday is currently priced at $0.81, or 14.5% of the stock price. In other words, the options market expects a 14.5% move in GRPN (in either direction) before Friday's closing bell. If GRPN options are priced fairly, and the stock reacts positively to earnings, today's call buyers should be in the money. Should Groupon fail to live up to these bullish expectations, only the call premium paid is at risk. The option's delta currently stands at 0.38, giving a slightly less than 2-in-5 chance at an in-the-money finish on Friday.
Groupon Inc (NASDAQ:GRPN) has disclosed mixed earnings results over the last five quarters, beating expectations twice, missing twice, and falling in line with the consensus view on one occasion occastion. Analysts are currently forecasting a per-share profit of 3 cents, a penny better than year-ago figures. On the charts, GRPN has been fighting its way higher of late, up over 14% in 2013 and outperforming the broader S&P 500 Index (SPX) over the last two months.