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Groupon Inc (GRPN): Why Everyone's Watching This Level

Groupon Inc has seen both buying and selling activity at its August 7 call strike

by 7/17/2014 1:34 PM
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Call options have been a popular choice on daily deals site Groupon Inc (GRPN) lately, according to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). During the past 10 sessions, GRPN has racked up a call/put volume ratio of 13.83 on the ISE, CBOE, and PHLX. This ratio arrives in the 99th percentile of its annual range, as speculative players have rarely shown a greater preference for bullish bets over bearish on the stock.

From a broader view, traders on the ISE, CBOE, and PHLX have bought to open 5.24 calls for every put on GRPN during the past 50 trading days. Again, this ratio outranks 99% of other daily readings within the last 52 weeks -- marking a near-peak of call-buying activity, relative to puts.

Returning to that 10-day time frame, GRPN's August 7 strike has experienced the biggest surge of open interest during this period. More than 6,000 contracts have been added to open interest at the August 7 call over the past two weeks, and there are now a total of 17,239 contracts in residence here. As a result, the August 7 strike is now home to peak call open interest for the series.

It's interesting to note that the activity at this narrowly out-of-the-money strike has been a fairly even mix of buy-to-open and sell-to-open volume, according to the ISE, CBOE, and PHLX. Traders who sold the calls are looking for GRPN to remain below $7 through August expiration, while those who bought the calls are betting on the stock to surmount this strike within the next four weeks.

However, August 7 call buyers could have an ulterior motive. Short interest on GRPN rose nearly 6% during the most recent reporting period, and now accounts for 19% of the equity's float. At the stock's average daily trading volume, it would take more than five sessions for all of these bearish bets to be covered. With short interest and buy-to-open call volume both on the rise, it's possible that short sellers have been buying calls in order to limit their upside risk -- not to bet on a rally for GRPN.

From a technical perspective, the $7 level has played an important role for Groupon Inc (NASDAQ:GRPN). This region provided support through the month of April, but has since switched roles to act as resistance -- making the stock's 7-strike call a logical place for both premium sellers and shorts to focus their attention. At last check, GRPN is fractionally lower at $6.27.

Daily Chart of GRPN since December 2013


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