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Groupon Traders Bet Big Before Earnings

April-dated call options active in the GRPN pits ahead of quarterly earnings report

by 11/7/2012 2:49 PM
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Call volume has accelerated on Groupon Inc (NASDAQ:GRPN - 3.77) as the company prepares to report quarterly earnings after tomorrow's close. With under two hours to go in the trading day, more than 66,000 call contracts have changed hands. This trumps the expected intraday call volume by a factor of six and is nearly eight times greater than intraday put volume on the equity.

Nearly all of today's volume traded on two strikes -- the January 2014 5-strike call and the April 2013 4-strike call. The longer-term, higher-strike option saw a block of 30,000 contracts trade off the bid price of $0.95 per contract shortly after the open. According to date from Trade-Alert, this could close out a call purchase made for $1.10 apiece on Oct. 31.

Meanwhile, the April 4 call also saw a block of 30,000 contracts trade, but these traded off the ask price of $0.80. This could add to a group of 27,500 long calls bought for $1.20 on Oct. 25. If this is the same trader executing both trades, the average price of the total 57,500-contract position is roughly $0.99 per contract.

For today's trader, however -- assuming these are being bought to open, a theory being supported by a nearly two-percentage-point pop in implied volatility -- breakeven at expiration is $4.80 (strike price premium paid).

Call have been increasingly popular among speculators, judging by the stock's 10-day call/put volume ratio of 9.13. In other words, option players have bought to open more than nine calls on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) for every put. Not only is this ratio well above the 50-day reading of 4.13, it is just two percentage points shy of an annual peak. Put simply, option traders have rarely been more call heavy. Note that some of this activity could be the result of short sellers hedging their positions, as nearly 13% of the stock's float remains sold short.

GRPN returns to the earnings confessional tomorrow evening, and investors are expecting per-share results of $0.04. In two of its three earnings reports since becoming a public company, GRPN has issued a positive surprise. Even so, however, the stock took a 27% tumble the day following its Aug. 13 report, as the Street focused on the revenue number and the company's cautious outlook. Today's traders are displaying some chutzpah with these calls, then, although the April series allows some time for any earnings mishaps to fade.

GRPN's at-the-money (4-strike), weekly straddle is currently priced at $0.75, or almost 20% of the stock's price. In other words, the options market is pricing in a nearly 20% move in the shares between now and the closing bell this Friday.


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