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Option Bulls See Groupon Inc (GRPN) Snapping Out of Its Earnings Funk

GRPN speculators are scooping up call options at a faster-than-usual clip

by 2/27/2013 9:50 AM
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Ahead of tonight's turn in the earnings confessional, bullish bets are picking up steam on Groupon Inc (NASDAQ:GRPN - 5.61). During the past two weeks, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open nearly four GRPN calls for every put. Even more telling, the stock's 10-day call/put volume ratio of 3.83 stands higher than 81% of all other readings of the past year, pointing to a healthier-than-usual appetite for bullish bets of late.

In Tuesday's session, GRPN saw roughly 18,000 calls cross the tape -- more than double the number of puts exchanged. A few option bulls rolled the dice with the weekly 3/1 6.50-strike call, which saw open interest increase by more than 1,000 contracts overnight. Plus, the majority of the calls traded on the ask side, hinting at buyer-driven volume.

By purchasing the calls at a volume-weighted average price (VWAP) of $0.14, the buyers expect GRPN to muscle north of $6.64 (strike plus VWAP) -- in territory not charted since August -- by the closing bell on Friday, when these options expire. Currently, the options' delta stands at 0.24, suggesting the options market is giving the contracts a roughly 1-in-4 chance of moving into the money by the end of the week. However, even if GRPN earnings disappoint and the stock retreats, the most the buyers can lose is the initial premium paid for the calls.

History, though, appears to be on the bears' side. In the week after reporting earnings, the shares of GRPN have retreated significantly in three of the past four quarters. Most recently, the stock found itself 26% lower a week after its release in early November. In the quarter prior, the security suffered a post-earnings drop of 38.4% in the five sessions following the figures. For the current quarter, Wall Street is calling for a per-share profit of 3 cents.

Technically speaking, the shares of GRPN have added more than 14% in 2013, but recently stalled in the $6 neighborhood. This region is home to the equity's descending 200-day moving average, which could translate into a psychological speed bump for the stock. What's more, the March 6 and 7 strikes are home to more than 32,000 calls combined, which could exacerbate short-term resistance in the area.


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