Groupon Inc (GRPN) Calls Fly Off the Shelves

Call buyers are betting on Groupon Inc (NASDAQ:GRPN) to extend its 2016 gains into May

by Kirra Fedyszyn

Published on Apr 15, 2016 at 3:13 PM

Online coupon specialist Groupon Inc (NASDAQ:GRPN) is up 4.4% at $4.62, possibly in response to an upbeat analyst note. The stock's 2016 gains -- now over 50% -- are largely due to a post-earnings bull gap, seen in mid-February. Since then, GRPN has been enjoying support from its 200-day moving average, advancing more than 16% in April so far. And today option traders are busy betting that GRPN will extend its gains beyond its next earnings report, due later this month.

GRPN Daily Chart 

Macquarie -- which already holds an "outperform" opinion on the stock -- today raised its price target to $5 from $3.50. Analyst Tom White cited "evidence that its core U.S. turnaround is on track," and applauded Groupon Inc's plans to move its model away from email and toward becoming a real-time marketplace, saying local U.S. deals seem to be ramping up. 

However, despite GRPN's recent strong technical performance -- the stock has outperformed the S&P 500 Index (SPX) by 65 percentage points over the last three months -- most analysts are far from optimistic, with 12 out of 15 rating the shares a "hold" or worse, leaving plenty of room for potential upgrades. And the consensus 12-month price-target of $3.68 represents a 20% discount to GRPN's current value.

The shares could see further gains should remaining short sellers back off. While short interest has fallen 13.6% over the past month, it still accounts for more than 14% of GRPN's available float, or about six days' worth of trading, at the equity's typical daily pace.

And option traders have been more bearish than usual of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day put/call volume ratio of 0.31 is in the 97th percentage of its annual range. Plus, GRPN has a Schaeffer's put/call open interest ratio (SOIR) of 0.76, higher than 94% of the past year's readings, indicating near-term players are more put-skewed than normal. Still, by absolute numbers, a preference for calls over puts has been the norm for GRPN.

Today, GRPN calls are crossing the tape at five times their expected intraday rate, with 16,000 changing hands so far, compared to just 1,500 puts. Most active is GRPN's May 4.5 call, where most of the action looks to be buy-to-open. That means call buyers are betting that Groupon Inc (NASDAQ:GRPN) will extend its rally above the $4.50 level through the close on May 20 -- when the soon-to-be front-month option expires, and well after the company's April 28 earnings release.

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