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Groupon Sees a Surge in Bullish Options Trading

Call volume balloons on GRPN

by 1/14/2013 2:12 PM
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Groupon Inc (NASDAQ:GRPN - 5.29) has been inundated with call activity today, as approximately 37,000 of these options have changed hands so far. This is roughly five times the equity's expected intraday volume, and more than six times the number of puts traded. The near-the-money April 5.50 call has seen most of the action, with close to 11,500 contracts exchanged at a volume-weighted average price (VWAP) of $0.82.

It appears that two large blocks totaling nearly 9,500 contracts crossed closer to the ask price, suggesting they were bought. Since this option is presently home to open interest of 3,200 contracts -- and implied volatility has ticked almost 6 percentage points higher during the course of the session -- it's likely that new bullish bets are being placed here. If these calls were, in fact, bought to open, speculators are counting on the shares to rise north of $6.32 (strike price plus the VWAP) by the time April-dated options expire. This reflects a 19.5% increase from its current perch.

Today's uptick in GRPN call volume is par for the course. The equity's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio stands at 4.90, confirming traders have bought to open nearly five calls for every put during the past two weeks. This ratio is just 9 percentage points shy of a yearly peak, meaning speculators have been snapping up bullish options over bearish at a near annual-high clip.

Technically speaking, GRPN has largely been an underperformer, shedding more than 72% on a year-over-year basis. However, the equity is off to a more promising start in 2013, gaining nearly 9% this month alone. Still, should the shares fail to conquer the previously noted breakeven rail prior to April expiration, the most today's call buyers stand to lose is the initial premium paid.


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