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The Groupon Inc (NASDAQ:GRPN) options pits are flooded today, with nearly all of the attention on the call side. Roughly 55,000 GRPN calls have changed hands, five times more than expected intraday volume and more than 48 times the number of puts already exchanged today. Although the lion's share of these calls are being sold to open, the long-range forecast leaves room for GRPN to rally, as the investor is targeting the $10 level, or a 43.5% jump from the stock's current perch of $6.97.
Digging in, a block of 49,469 January 2014 10-strike calls crossed the tape at the bid price of $0.55 per contract shortly after the opening bell. Given that open interest was just 7,296 heading into today's trading, it is safe to assume off the bat that these are new positions. The International Securities Exchange (ISE) confirms the customer's order was sold to open, for a net credit of approximately $2.72 million (the number of calls traded, times the premium, times the factor of 100 to account for the 100 shares represented by each call contract).
According to Trade-Alert, these calls were not paired with stock, but may correspond to an existing stock holding as part of a covered-call strategy. In other words, today's call seller may be a shareholder who would be willing to unload his position should GRPN rally up to $10. In the meantime, he collects the premium for selling the calls, and if GRPN doesn't overtake the 10 strike by January expiration, he retains the entire premium as profit as the calls expire worthless (assuming he holds the positions through expiration).
Widening the scope to look at the overall options picture, it looks as though traditional calls have been popular of late. During the last 10 trading days, 65,690 calls have been purchased to open versus 21,119 puts, according to the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The resultant call/put volume ratio of 3.11 is in the top one-third of the past year's worth of readings, suggesting a slight preference for long calls of late.
However, not everyone is a GRPN fan. Short interest accounts for more than 11% of the equity's float, but these bears are starting to jump ship. During the last reporting period, the number of GRPN shorted shares decreased by more than 18%. Continued short-covering activity could boost the stock over the short term.
Meanwhile, despite the stock's impressive comeback -- GRPN shares are up more than 43% in 2013 and have gained close to 25% since reporting earnings on May 8 -- analysts remain largely skeptical. Even after some recent price-target hikes, the consensus 12-month price target of $6.34 is south of the stock's current price. Also, just two of the 23 analysts following the stock have handed down a rating of "buy" or better, leaving plenty of room for future upgrades.