After the Bell, Shorts Could Squeeze Groupon Hard: Najarian

If you have money in social media, chances are you’ve noticed the surge in Groupon ahead of earnings Monday after the bell.

The online deals site had been trading at its lowest levels since going public last week, but then Groupon surged.

What should you make of it?

According to traders Joe Terranova, chief market strategist for Virtus, and Jon Najarian, co-founder, this is a case of looks can be deceiving. It’s short covering. Nothing more.

“There are over 9 million shorts in this stock,” Najarian tells us, “and chatter suggests earnings won’t be awful. That’s enough to send some of them running for cover.”

Both pros tell us they worry that retail investors will take gains as an all-clear signal.

“Gains in Groupon are not a sign that the fundamentals of the company are getting better,” Terranova tells us after the broadcast. “Fundamentals are still lousy.”

And don’t extrapolate Groupon’s move to other social media names. “That would also be a mistake,” Najarian says.

However, that’s not to say your can't profit from an expected short-squeeze, Najarian says you can. But you have to be nimble.

“On Friday I was seeing a lot of out of the moneycall buying,” Najarian tells us. That’s a sign that big institutional investors are looking for the stock to trade higher.

In other words, “This is a bet on a quick pop,” Najarian says. “However I do think there’s enough gas in the tank to send more shorts scrambling. After the bell, shorts could squeeze Groupon hard.”

Posted by CNBC's Lee Brodie

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Trader disclosure: On August 13, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Jon Najarian is long call spreads in AAPL; Jon Najarian is long call spreads in EEM; Jon Najarian is long call spreads in FMCN; Jon Najarian is long call spreads in SBYX; Jon Najarian is long call spreads in OAS; Jon Najarian is long call spreads in ABX; Jon Najarian is long GLUU; Jon Najarian is long STSI; Jon Najarian is long CME; Jon Najarian is long CBOE; Joe Terranova is long VRTS; Joe Terranova is long MCD; Joe Terranova is long SBUX; Joe Terranova is long WFM; Joe Terranova is long AAPL; Joe Terranova is long EMC; Joe Terranova is long NXPI; Stephen Weiss is long JPM; Stephen Weiss is long WLP; Stephen Weiss is long QCOM; Stephen Weiss is long VZ; Stephen Weiss is long T; Stephen Weiss is long HK; Stephen Weiss is long TOT; Stephen Weiss is short JCP; Stephen Weiss is short AAPL PUTS; Steve Grasso is long HPQ; Steve Grasso is long ZNGA; Steve Grasso is long MSFT; Steve Grasso is long DD; Steve Grasso is long ASTM; Steve Grasso is long BA; Steve Grasso is long D; Steve Grasso is long FRO; Steve Grasso is long LNG; Steve Grasso is long MHY; Steve Grasso is long MO; Steve Grasso is long NVIV; Steve Grasso is long PFE; Steve Grasso is long S; Steve Grasso is long XLU with wires.