Options Traders Brace For Sharp Earnings Swing on Groupon Stock

Options traders are expecting another massive post-earnings move for Groupon Inc (GRPN) shares

Feb 14, 2017 at 11:08 AM
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Daily deals specialist Groupon Inc (NASDAQ:GRPN) is set to report earnings tomorrow morning, and options traders are bracing for another massive move for the shares. Over the past eight quarters, the stock has swung lower in the session subsequent to reporting five times, while averaging a hefty one-day swing of 18% in either direction, including a 22.1% drop after GRPN's most recent report. This time around, the options market is pricing in an even wider single-day swing of 24.4%. And from the looks of it, traders and analysts are largely expecting downside.

Beginning in the option pits, GRPN puts have seen a rise in popularity in recent weeks, per the stock's 10-day put/call volume ratio of 0.27 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Though this reading is call-skewed on an absolute basis, it ranks higher than 69% of all comparable readings from the last year. Plus, call open interest is currently seated just 6 percentage points from an annual low, while put open interest is in the top one-third of its 12-month range.

On a related note, put selling has been a popular strategy among GRPN options traders of late, with more than five puts sold to open for each one purchased over the past 50 days, according to data from the major options exchanges. Digging deeper, the February 3 and 3.50 strikes saw the biggest increase in open interest among put options over the past two weeks, and a large number of these were sold to open, per exchange data. Simply stated, options traders appear to be targeting a technical foothold for GRPN through the end of this week, when the front-month series expires.

This optimism doesn't seem to extend outside of the options arena, however. Short interest on the shares has been climbing in recent reporting periods, and now represents 12.5% of the total float. At GRPN's average daily volume, it would take short sellers nearly seven sessions to cover their bearish bets. Likewise, nine out of 14 analysts call the equity a "hold" or "strong sell."

Technically, GRPN has been struggling since topping out at an annual high just shy of $6 last August. Following their earnings-induced plummet in late October, the shares have continued to slide, with the declining 50-day moving average applying pressure of late. Today, Groupon Inc (NASDAQ:GRPN) has muscled atop this trendline, up 5.6% at $3.76, but is now running into its 80-day moving average.

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