Been using groupon, livingsocial and other coupon websites and lately notice that their offerings are not good as used to be. Now, they mostly offer some randon restaunrants, spa, as well as cleaning stuffs. I don’t remember when was the last time I bought a deal from those websites. How about you guys? I checked groupon today and it trades around $20 and can buy a put option for around $3 for $15 Jan 2013. I’m not an expert on options trading, but have been interested in learning. I really don’t see how this company will survive in the next few years. What do you guys think?
Puts on Groupon are super expensive. Assuming you pay today’s closing ask price of $3.4 for the Jan 2013 15 Puts and the current stock price is $19.41, for you to break even, GRPN needs to fall by about 40% in less than one year. Even if you dislike the company, these are not good odds!
The problem with shorting GRPN is that there is insufficient supply of stock to borrow - many people want to short the stock, but float is so small. So borrow costs are extremely high - was like 40% right after IPO. Now, it’s probably a bit lower, but still very high. You can’t “cheat” the borrow costs through puts - it’s all reflected in the costs.
My advice is for you to not follow the herd. There is too much demand for short GRPN trades, so you will have to pay more than the trade is worth to get in. Smart trading involves buying what people are neglecting and selling what people want too much.
Yeah, that’s pretty expensive. But, you can still make money on the put if there’s a sharp downturn in the near price of GRPN stock. I love buying far dated options for short term trading.
This specific trade I wouldn’t do. I’m not going long or short GRPN anytime soon, but I actually see more upside at the moment. Call it a tech beta play.