Option Bulls Circle Groupon Inc (GRPN) Ahead of Earnings

Option bulls are hoping Groupon Inc (GRPN) can break north of $6 after earnings tomorrow

Oct 25, 2016 at 3:13 PM
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As the biggest earnings week of the quarter continues to trudge on, online discount retailer Groupon Inc (NASDAQ:GRPN) is preparing to report earnings tomorrow evening, and GRPN options are crossing the line at an accelerated clip.  While some option players are anticipating a big post-earnings move for GRPN shares, the stock may have several layers of resistance to overcome if it wants to touch new highs.

So far today, GRPN is up 2.7% at $5.30, with year-to-date gains over 72%. The shares seem to have recently found support in the $5 region, which has contained several pullbacks, and limited upside momentum in March. However, GRPN shares were rejected at the $6 mark in mid-August, which represents a 61.8% Fibonacci retracement of the early-2015-to-early-2016 slide. This region also represents a 100% gain on a year-to-date basis. 


While puts are crossing the line at four times their average intraday pace, calls are still the dominant force in the GRPN option pits. Over 16,000 call contracts have crossed the line today, outnumbering puts more than 4-to-1, and representing five times GRPN's average intraday call volume. 

Potential buy-to-open activity has been spotted at the weekly 10/28 and 11/11 6-strike calls, with the former the most active so far today. In fact, the weekly 10/28 5- and 6-strike calls are the second and third top open interest positions, respectively, and have seen the largest open interest increases over the past 10 days. Looking at the front-month November series, the 5- and 6-strike calls are also the dominant options, and open interest at the latter strike could translate into an added options-related speed bump for the shares in the near term. 

GRPN's Schaeffer's put/call open interest ratio (SOIR) of 0.28 sits in the bottom 17% of its annual range, suggesting near-term traders are more call-skewed than usual. Although GRPN's short interest is down 9.3% over the last two reporting periods, shorted shares still account for 10.7% of GRPN's float, which would take traders over eight days to cover, at GRPN's average daily volume. There could be possible hedging action taking place at the December 8 call today, which earlier saw a sweep of several hundred contracts bought to open. These calls won't be in the money unless GRPN shares manage to skyrocket roughly 50% to new annual highs by the time the options expire on Dec. 16.

Groupon Inc (NASDAQ:GRPN) has averaged an 18% single-day swing after earnings for the past eight quarters. The options market is pricing in a 25.8% single-session move this time around.

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