Groupon Inc (GRPN) Options Trader Eyes Another Earnings Blowout

Groupon Inc (GRPN) will report earnings next Wednesday night

Oct 20, 2016 at 12:54 PM
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Groupon Inc (NASDAQ:GRPN) options are flying off the shelves this afternoon. This is especially true on the call side of the aisle, where the contracts are running at seven times the usual intraday pace -- and set to register in the 98th annual percentile. From the looks of it, one options trader is setting his sights on some major short-term upside, possibly in the wake of an earnings win next week.

Diving right in, twin 5,500-contract blocks at the weekly 10/28 5- and 6-strike calls changed hands this morning. According to Trade-Alert, the speculator bought to open the lower-strike lot and sold to open the higher, amounting to a bull call spread -- essentially a lower-risk/lower-reward way to bet bullishly on a stock, compared to simply buying a call. The net debit on each spread was $0.33, resulting in a total cash outlay of more than $180,000 (net debit * number of contracts * 100 shares per contract).

By initiating these positions, the trader is betting on GRPN surging north of $6 -- annual-high territory -- by next Friday's close, when the weekly series expires. The company is slated to report earnings on Wednesday, Oct. 26. If, however, the shares settle below $5, the speculator risks losing the entirety of his initial cash layout. At last check, the stock was down 0.1%, hovering directly on the round $5 level.

Groupon calls have been extremely popular lately. The stock's 20-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands at a top-heavy 6.20, with long calls outstripping puts by a more than 6-to-1 margin. Echoing this, GRPN's Schaeffer's put/call open interest ratio (SOIR) of 0.30 rests in the bottom quartile of its annual range, suggesting short-term calls have been strongly preferred over puts on both an absolute and relative basis.

GRPN's long-term performance hasn't done anything to temper bullish expectations, either. Year-to-date, the shares have sizzled to a nearly 63% advance. And with earnings around the corner, another huge move could be in the cards -- which the bull call spread trader obviously hopes will resolve to the upside.

Twice this year, Groupon Inc (NASDAQ:GRPN) shares have rocketed to a 29% single-day gain in the session subsequent to earnings, which bodes well for bulls. Of course, sandwiched in between those performances was an 18.3% post-event loss.

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