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Groupon Option Players Bet On a Solid Finish to the Week

GRPN's weekly 1/11-strike put saw a glut of sell-to-open activity on Thursday

by 1/11/2013 10:52 AM
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Put volume accelerated on Groupon Inc (NASDAQ:GRPN - 5.20) yesterday, with the contracts trading 51% above their average daily pace. Of the 8,132 puts that crossed the tape Thursday, nearly 2,600 contracts changed hands at GRPN's weekly 1/11 5 strike, which expires at the end of today's session. A healthy portion of these went off at the bid price, and open interest rose overnight, hinting at the initiation of new neutral-to-bullish positions.

By selling these puts to open, traders expect GRPN to maintain its recently found foothold atop the $5 mark through tonight's closing bell. In this best-case scenario, the speculators will be able to pocket the full potential profit, or $0.07 per contract, which Trade-Alert indicated was the volume-weighted average price (VWAP). Meanwhile, the maximum potential risk on the play is limited to the strike minus the premium received, or $4.93, should the stock tumble down to zero by today's close.

From a broader sentiment standpoint, option players have taken the traditional route to bet bullishly on GRPN in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open more than five calls for every put during the past two weeks. The resultant call/put volume ratio of 5.35 ranks in the 92nd percentile of its annual range, indicating bullish bets have been accumulated over bearish with more rapidity just 8% of the time within the past year.

This sanguine stance on the part of option traders is understandable, given GRPN's recent run higher on the charts. In addition to outperforming the broader S&P 500 Index (SPX) by more than 84% over the last 40 sessions, the stock has doubled in value since hitting a record low of $2.60 on Nov. 12. Plus, to the delight of yesterday's put sellers, GRPN is on track to finish a second straight week atop the $5 mark -- a feat not accomplished since early October.

At last check, GRPN was up 0.4% in today's session to hover near $5.20.


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