September 5th Options Now Available For Groupon (GRPN)

The article details two options strategies for Groupon (GRPN): selling an out-of-the-money $33.00 strike put and a covered call using a $35.00 strike. Selling the put offers a potential 4.55% return (38.58% annualized) if it expires worthless (59% probability), effectively lowering the cost basis to $31.50 if assigned. Alternatively, a covered call strategy, involving buying GRPN at $33.30 and selling the $35.00 call, could yield 10.06% if assigned by September 5th, or an annualized 42.06% premium if the option expires worthless (48% probability). Notably, the implied volatilities for these options (89% for the put, 93% for the call) are slightly above GRPN's 88% trailing 12-month historical volatility.

Analysis

The provided text outlines two specific income-generating options strategies for Groupon (GRPN), highlighting the implications of its high volatility environment. The first strategy involves selling a cash-secured put at a $33.00 strike price for a $1.50 premium, which would establish a cost basis of $31.50 if assigned, a discount to the current share price of $33.30. This trade has a 59% probability of expiring worthless, which would yield a 4.55% return on capital, or an annualized 38.58%. The second strategy is a covered call, selling a $35.00 strike call for a $1.65 premium against shares purchased at $33.30. This caps potential gains at a 10.06% total return if the stock is called away by the September 5th expiration, but offers a 4.95% premium yield (42.06% annualized) if the option expires worthless, an event with a 48% probability. Critically, the analysis points to elevated implied volatilities of 89% for the put and 93% for the call, which are slightly above the stock's 88% trailing twelve-month historical volatility. This suggests the options market is pricing in significant price movement, making these premiums attractive but also signaling heightened risk.

Key Decisions for Investors

• Investors with a neutral to bullish outlook on GRPN could consider selling the $33.00 strike put to either acquire shares at an effective cost basis of $31.50 or to generate a 4.55% return if the option expires out-of-the-money.
• Current GRPN shareholders seeking to generate yield may find the covered call strategy attractive, as the 93% implied volatility provides a significant premium; however, this requires accepting a cap on upside potential with shares being called away at $35.00.
• Given that implied volatility is elevated compared to historical levels, traders should be cautious of the significant price swings being priced in by the market, which could challenge either the put or call positions if the stock moves sharply.