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Traders See June Gloom for Groupon Inc (GRPN)

Pessimism toward GRPN continues to abound, despite strong technicals

by 6/11/2013 1:47 PM
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Groupon Inc (NASDAQ:GRPN) puts have been all the rage of late. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) indicates that 33,467 have been bought to open versus 23,908 calls over the past 10 sessions. The resultant put/call volume ratio of 1.40 ranks in the 97th annual percentile, revealing a near-high for bearishness, relative to the past year's worth of activity.

That trend is continuing today, where over 10,000 June 5 puts have traded, 99% at the ask price. Additionally, implied volatility is up nearly 29 percentage points, which suggests that new positions were created.

In order for these put buyers to profit from the play, they'll need Groupon to fall sharply over the coming sessions. Specifically, from their perch of $7.15, the shares must descend to $4.97 -- the deep out-of-the-money strike, less the $0.03 volume-weighted average price -- by front-month expiration on June 21.

To think that bearishness is restricted to GRPN's options pits would be a mistake. The online couponing name has a 12-month price target of $6.34, which is a significant discount to where the stock is currently trading. Moreover, just two of 23 analysts covering the stock rate it a "strong buy," compared to 15 "holds," one "sell," and five "strong sells."

This pandemic of pessimism is strange, considering the fact that Groupon has tacked on a cool 47% year-to-date. Over the past 60 sessions, the equity has also outperformed the broader S&P 500 Index (SPX) by 26 percentage points.

Should that upward trajectory hold up, it wouldn't be surprising to see a round of price-target hikes and/or analyst upgrades. In that case, it would be yesterday's July 8 call buyer who could potentially profit, rather than today's put buyers. No matter what happens, however, those bears can lose no more than the premium paid at initiation.


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