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Groupon Option Players Called Today's Rebound

GRPN's weekly 3-strike call was popular on Friday

by 11/19/2012 10:35 AM
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Groupon Inc (NASDAQ:GRPN - 3.11) has been heavily targeted by call players in recent months, per data at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Over the course of the past 50 sessions, speculators have bought to open 433 calls for every 100 puts. What's more, this call/put volume ratio of 4.33 ranks higher than 99% of other such readings taken in the last year, indicating bullish bets have been scooped up over bearish at a near annual-high clip during the past 10 weeks.

Calls emerged as the options of choice on Friday, amid a low-volume session. Nearly 9,200 calls traded, compared to fewer than 6,200 puts. Traders turned their attention to GRPN's 11/23 weekly series of options -- specifically, the 3-strike call. Of the 4,061 contracts that crossed the tape here, 99% did so at the ask price, and open interest rose over the weekend, making it safe to assume new positions were created.

By buying these calls to open for a volume-weighted average price of $0.10, speculators expect GRPN to finish the holiday-shortened week above the $3.10 mark (the strike plus the average premium paid). The stock has not enjoyed a daily close above the $3 level since taking an earnings-induced slide on Nov. 9.

Given GRPN's 85% year-to-date deficit, this tendency toward calls may seem surprising. Remember, though, that the profit potential for long puts is limited to the strike price minus the premium paid. With the stock trading near record lows -- it tagged the $2.60 mark just one week ago -- option players may not view put buying as a lucrative bet at the equity's current levels.

As touched upon, GRPN has had a dismal run on the charts in 2012, and the stock has been driven lower under the weight of its 10- and 20-day moving averages since early February. In fact, even though the shares have surged roughly 5% in today's session after the company announced the opening of its first concept store in Hong Kong, they are still being contained by the short-term trendlines. However, with the stock's Relative Strength Index (RSI) of 31 suggesting GRPN is treading in oversold waters, today's bounce may have been in the cards.

At last check, the equity was hovering near $3.11 -- in profitable territory for Friday's weekly call buyers.


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