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Groupon (GRPN) Options Draw Sizable Spread Strategy

 March 28, 2012 01:46 PM

Groupon, Inc. (GRPN) – The provider of a diverse mix of local daily deals featuring anything from Botox injections and manicures to fine-dining experiences and cupcakes, popped up on our scanners this morning after a sizable options combo play was initiated in the May expiry. Shares in Groupon are in negative territory this afternoon, but earlier increased as much as 2.6% to touch an intraday high of $18.76. The stock, which reached a peak of $27.78 in its first day as a publicly traded company back in November, just about halved in value in the weeks following the IPO. Quick rallies in the share price paired with subsequent pullbacks have been a fairly consistent pattern for GRPN shares in 2012, though recently the stock price has been less volatile, trading in the range of roughly $16.25 to $18.60 in the past few weeks. Perhaps the relative stagnation in the shares spurred one option strategist to position for the stock to take another stab at the upside in the next couple of months. The trader appears to have sold 5,000 May $13 strike put options in order to partially finance the purchase of a 5,000-lot May $19/$22 call spread, all for a net premium outlay of $0.55 per contract. The three-way spread prepares the trader to make money should GRPN's shares rally 7.8% over the current price of $18.14 to surpass the average breakeven point at $19.55 by expiration in May. Maximum possible profits of $2.45 per contract are available on the position as long as shares in the daily deals provider jump 21.3% to settle above $22.00 at expiration. Groupon, Inc. is scheduled to report first-quarter earnings after the market closes on May 8th.

[Related -NVIDIA Corporation (NVDA) Q3 Earnings Preview: Can We See Another Beat?]

[Related -Groupon Inc (GRPN): Digital Coupons Could Be The Next Leg Of Growth]

Pentair, Inc. (PNR) – Shares in both Pentair and Tyco are trading at their highest in years on news the planned spinoff of Tyco's flow control business will merge with the operations of Pentair in an all-stock deal combining two of the largest entities in water and fluid products systems. Pentair's shares rallied as much as 21.1% to an intraday high of $48.77 on news of the deal. Options on Minneapolis, Minnesota-based Pentair are more active than usual today compared to the stock's 90-day average options volume of 36 contracts. Traders exchanged 481 lots on PNR in the first half of the session. Overall open interest of 1,971 positions on the stock, composed of more than two calls for each single open put contract, appears in large part to have been established well in advance of today's big news. But, one trade initiated in the front month calls yesterday caught our attention. It looks like one trader purchased 20 calls at the April $40 strike yesterday for a premium of $0.85 per contract. The sharp move in the price of the underlying shares overnight launched premium on the $40 calls up to a last-traded price of $7.40 today, a more than eight-fold increase over the price paid per contract on Tuesday.

NVIDIA Corp. (NVDA) – Shares in the chip maker are up 2.9% at $15.25 this morning after the stock was upgraded to ‘Market Perform' from ‘Market Underperform' at JMP Securities. Call buying on NVIDIA Corp. today suggests some traders expect shares to extend gains in the next couple of months. Volume in NVDA calls is greatest out at the May $16 strike where more than 9,100 contracts changed hands against open interest of 2,637 positions. It looks like most of the calls were purchased for an average premium of $0.58 apiece, positioning buyers of the options to profit in the event that NVIDIA's shares rally another 8.7% to exceed the average breakeven price of $16.58 by May expiration. Call buyers may be getting bullish on the stock ahead of the Santa Clara, California-based Company's first-quarter earnings release on May 10th.



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