More Room for GRPN to Tank

---

More Room for GRPN to Tank

Yesterday was not exactly the best day for Groupon.  On Friday they announced that they were going to have to restate revenues, again.  Needless to say, the stock got crushed and with the added uncertainty option implied volatilities went up.  But does that mean it is too late to take action on this name?  Is it too late to buy premium in hopes the stock drops?  My initial thoughts are no.  Take a look at the speed at which Groupon's stock can take a dive:

LiveVol (r) www.livevolpro.com

Now notice how high the IV can get on those sell offs.  I think put options have another 10% of IV or more that could get priced in.  Not to mention the fact that companies that lose money, that don't keep good books, do not stay above 10.00 for long.  So how can traders play it?  A cheap way is to take advantage of the skew in GRPN which is considerable.  It is always worth it to try and find the expensive option on the board to sell.



LiveVol (r) www.livevol.com

This will allow the trader to greatly reduce both volatility exposure and price exposure on a bearish GRPN position.  There are several options on the close that might make some sense.  While there are some who would spread here, or go to sell call spreads.  I think GRPN has some real problems here and might be worth the short.  I would probably be looking to get long puts.  Taking a look at the montage:

LiveVol (r) www.livevol.com

There are plenty of dollar cheap options to buy.  I think any one of these is worth the flier; those with thin skin should do a spread.  However the goal of spreading should be to sell an expensive option against buying a cheaper option.  However, in the case of GRPN, there may not be any cheap options.


"

---

View Mark Sebastian's post archive >