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Pessimism Balloons as Bears Flock Toward Groupon

Speculators targeted GRPN's February- and April-dated puts

by 1/17/2013 9:35 AM
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Groupon Inc (NASDAQ:GRPN - 5.03) bears were out in full force yesterday, despite the company's launch of the Merchant Impact Report, a free tool that will allow merchants to gauge whether the daily deals site is increasing their business. Nevertheless, more than 8,000 puts changed hands during the course of Wednesday's session, reflecting an 83% increase over the equity's average daily put volume.

Most popular were the April 5 and February 4.50 puts, which saw around 1,850 and more than 1,400 contracts traded, respectively. The vast majority of these puts were exchanged at the ask price, pointing to buyer-driven activity. Meanwhile, both strikes saw an overnight rise in open interest, signaling the initiation of new positions.

Digging even deeper into the data, it appears that the April-dated contracts crossed at a volume-weighted average price (VWAP) of $0.82. In other words, these put buyers are expecting GRPN to sink below $4.18 (strike price less the VWAP) by April expiration. In terms of the February puts -- which traded at a VWAP of $0.17 -- speculators will secure a profit if the stock retreats beneath the $4.33 level by the time February options expire.

Yesterday's surge in put activity marks a change of pace for the security. According to the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), GRPN sports a 50-day call/put volume ratio of 3.18, indicating calls bought to open have more than tripled puts during the last 10 weeks. This ratio arrives in the 79th annual percentile, meaning traders have been scooping up calls over puts at an accelerated clip.

GRPN has had little to cheer about during the past year, given the stock's 52-week loss of roughly 76%. Still, the shares have recovered about 93% since touching a record low of $2.60 on Nov. 12. It remains to be seen whether the equity will drop low enough by February (and April) expiration to reward Wednesday's bearish bettors.


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