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Options Volume Accelerates as Groupon Inc (GRPN) Extends Slide

Groupon Inc calls and puts are being used to gamble on short-term headwinds

by 4/11/2014 3:00 PM
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Option Brief: Groupon Inc (NASDAQ:GRPN) options volume is running at a 43% mark-up to the intraday average this afternoon, with calls and puts trading near parity. Eight of the 10 most active strikes expire in the next three months, prompting GRPN's 30-day at-the-money implied volatility (IV) to rise 2.3% to 70.0% -- its highest level since late February. Diving deeper reveals that -- unlike yesterday's option players -- a number of today's traders are utilizing both calls and puts to bet on continued struggles for the daily deals website.

On the call side, the stock's April 7 strike has received notable attention, and the vast majority of the 6,270 contracts traded have done so on the bid side, pointing to seller-driven activity. Meanwhile, IV is up 6.4 percentage points, and volume outstrips open interest, hinting at the initiation of new positions. By writing the calls to open, traders expect GRPN -- currently trading at $6.89 -- to churn beneath the $7 mark through next Thursday's close, when front-month options expire. In this best-case scenario, the calls will expire worthless, and the traders will retain the initial premium collected as their maximum potential reward.

Elsewhere, put players are targeting GRPN's April 6.50 strike, where 4,460 contracts have changed hands -- 95% at the ask price. IV at this out-of-the-money strike has shot 6.3 percentage points higher, and one lonely contract currently makes up open interest here. Summing it all up, it appears there is some buy-to-open activity happening. Should GRPN fail to tumble the 5.7% necessary to breach the strike price -- an area not traversed by the stock since last May -- by front-month options expiration, the most the speculators stand to lose is the initial premium paid. According to Trade-Alert, these puts are being scooped up for a volume-weighted average price of $0.03 apiece.

This skeptical stance among option traders isn't surprising, considering shares of Groupon Inc (NASDAQ:GRPN) have surrendered almost 45% since tagging their Jan. 6 year-to-date high of $12.42. This downward trajectory is continuing in today's session, with the stock off 2.3% at last check.


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