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Groupon Inc (NASDAQ:GRPN) is up 3.4% to trade at $11.92 this afternoon, after earlier tagging a new annual high of $12.17. As such, options activity has surged on both sides of the fence, with the total intraday volume ramped up to nearly five times the norm. In keeping with the recent trend, most of this traffic passed through on the call side. Specifically, 61,000 calls, compared to just 25,000 puts, have crossed the tape thus far.
Receiving considerable attention from the bullish camp has been the October 12 call, where more than 7,900 contracts have changed hands for a volume-weighted average price (VWAP) of $0.82. A healthy portion of the contracts -- including a block of 1,500 -- went off at the ask price, suggesting they were purchased. In addition, volume at the strike exceeds current open interest levels, which -- along with data from the International Securities Exchange (ISE) -- points to the initiation of fresh long call positions.
By purchasing these near-the-money options, today's call buyers anticipate GRPN will head north into territory unreached since May 2012 over the next five weeks or so. Specifically, they expect the stock to topple the breakeven price of $12.82 (strike price plus the VWAP) by the close on Oct. 18, when these soon-to-be front-month options expire. The likelihood of these calls moving into-the-money ahead of expiration is 51%, per the option's current delta of 0.51. Should close below the 12 strike upon October expiration, the most today's call buyers stand to lose is the initial premium paid.
On the other side, near-term bears are focusing on the September 12 puts and calls, where roughly 3,800 and 9,370 contracts have been exchanged, respectively. The majority of the puts went off at the ask price, indicating they were bought, while the majority of the calls went off at the bid price, conveying they were sold. Meanwhile, data from the ISE confirms some buy-to-open and sell-to-open activity at the respective strikes.
Today's put buyers anticipate GRPN will tumble south of the breakeven price of $11.47 (strike less VWAP of $0.53) by next Friday's close, when the options expire. Whether or not the stock will finish atop the 12 strike over the next five-plus days remains a toss-up. The shares have tacked on 11.9% in the last five days alone; however, today was the first time the stock has climbed north of the $12 mark all year, and it was quickly ushered south. Should GRPN finish at or above the 12 strike upon expiration, again, the most the put buyers stand to lose is the initial net debit paid.
Similarly, today's call writers expect GRPN to remain below the 12 strike. In this best-case scenario, the options will expire worthless, and call writers can pocket the initial net credit of $0.43 (today's VWAP on the option). However, in contrast to the capped downside of the put buyers, the call sellers face a theoretically unlimited maximum loss, since they're on the hook to deliver the shares for $12 each, no matter how high the underlying goes.
On the technical front, Groupon Inc (NASDAQ:GRPN) has advanced a whopping 155% over the past year. What's more, the stock has outperformed the broader S&P 500 Index (SPX) by nearly 47 percentage points during the last 60 sessions.
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