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Groupon Inc (GRPN) Put Buyers Emerge Ahead of Earnings

November 10 puts were popular among GRPN traders yesterday

by 10/10/2013 10:10 AM
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Groupon Inc (NASDAQ:GRPN) options traders crowded the bearish bandwagon yesterday, as roughly 23,000 put contracts changed hands, nearly doubling the average daily put volume. By contrast, overall call volume came in slightly lower than usual.

At center stage was the November 10 put, which saw about 9,000 contracts -- including four blocks of 1,000-plus contracts -- change hands at a volume-weighted average price (VWAP) of $1.06. Roughly three-fourths of the contracts went off at the ask price, and open interest spiked by nearly 8,000 contracts overnight -- together pointing to the initiation of fresh long put positions.

Wednesday's put buyers may have snatched up these near-the-money options in the hopes that GRPN will trek lower over the next five-plus weeks. Specifically, the trades won't be profitable at expiration unless the stock drops more than 16.8% from its current perch of $10.74 to finish beneath the breakeven rail of $8.94 (strike price less the VWAP).

Groupon is currently expected to report earnings the week of Oct. 28, and analysts, on average, are calling for a per-share profit of 1 cent. The stock's reaction after the last two earnings events was an average gain of 16.5% in the session following, and a weekly jump of 19.9%.

One year ago, however, GRPN plummeted sharply the day after its earnings report due to a major revenue miss. Perhaps yesterday's put buyers are simply GRPN shareholders who are picking up a hedge before the company's earnings report.

Whatever the motive, should GRPN fail to breach the 10 strike upon expiration, the most the traders stand to lose is their initial cash outlay. Considering the stock's Schaeffer's Volatility Index (SVI) of 60% sits lower than 89% of other such readings taken over the past year, such premium was relatively inexpensive, and nothing to lose sleep about.

Since touching an annual high of $12.76 in mid-September, Groupon Inc (NASDAQ:GRPN) has been in consolidation mode as it approaches technical support at its 20-week moving average. In 2013 so far, the shares have added more than 120%.

Option Briefs offer a concise look at recent notable trading activity. For more in-depth coverage of securities from an Expectational Analysis perspective, please visit our Trading Floor Blog section.


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