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Groupon Option Traders See Additional Gains Ahead

GRPN's March 4.50 call is the most active strike in today's session

by 1/22/2013 1:17 PM
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Calls are outpacing puts on Groupon Inc (NASDAQ:GRPN - 4.82) in today's session, with around 9,200 calls crossing the tape, versus about 4,300 puts. One group of speculators is hoping GRPN can resume its recent rebound, and muscle higher over the next couple of months. Specifically, around 2,350 contracts have traded at the stock's March 4.50 call, the majority of which have crossed at the ask price. This in-the-money strike currently houses no open positions, pointing to buyer-driven volume.

In order for these trades to be profitable by March expiration, GRPN needs to finish north of the $5.30 mark (strike plus the volume-weighted average price [VWAP] of $0.80) by the close on March 15, at which point the options expire. This breakeven price represents a 10% premium to the stock's current perch.

Expanding the scope shows today's bullishly skewed bias is nothing new for option traders. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock sports a 10-day call/put volume ratio of 3.49. Plus, this ratio ranks higher than 86% of other such readings taken in the last year, indicating calls have been bought to open over puts at a healthier-than-usual clip in recent weeks.

Echoing this trend is GRPN's Schaeffer's put/call open interest ratio (SOIR) of 0.51. Not only does this show that call open interest nearly doubles put open interest among options expiring in three months or less, but it ranks in the lowest percentile of its annual range. In other words, short-term speculators are more call-heavy now than at any other time during the past year.

GRPN's long-term technical struggles have been well-documented on the Street, but as a quick refresher, the stock has lost more than 78% of its value on a year-over-year basis. The security has shown some signs of life over the last few months, with the equity rallying roughly 85% from its mid-November low of $2.60. This positive price action was recently put in check by GRPN's 32-week moving average, which capped the equity's advance last week. The security is now stuck between resistance from this overhead trendline, and support from its shorter-term 10-week moving average.

The stock has given back roughly 2.8% in today's session on no apparent news, and was last seen trading near $4.82. Should GRPN fail to topple $5.30 by March 15 -- a time frame that encompasses the company's fourth-quarter earnings report -- the most today's call buyers have risked is the net debit paid.


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