How Low Can Groupon Go? $4, Says One Options Trader

Note: This post was written by Brian Stutland, President of Stutland Equities and a contributor to CNBC's "Options Action ."

On Monday we noticed some major bearish options activity on Groupon .

How Low Can Groupon Go? $4, Says One Options Trader

One trader bought 5, 900 April 5-strike puts, while selling April 4-strike puts, for a net cost of $0.55. In 185 days, if Groupon is at or below $4.00, this trade can achieve its maximum value of $1.00. That means that the trader is risking $.55 to make $.45.

It's not a bet that I would want to take at the casino, which tells me that this trader is very bearish, and sees even more downside for a stock that has already tumbled 81 percent since its IPO. (Read More: What's the Deal With Groupon's Stock? )

Why might you want to be bearish on the online couponing company right now?

Well, Groupon is scheduled to report earnings on Nov. 8, and another disappointing quarter has the potential to accelerate the stock's drop. But that said, the company has recently made seen making valiant efforts to fix its struggling businesses.

Groupon's senior management in Europe has been reshuffled, and the head of international business is leaving the company. Groupon has also recently acquired Breadcrumb, a point-of-sale iPad app targeted at local businesses. This could be a stepping stone for Groupon to begin taking restaurant reservations, thus allowing it to directly compete with OpenTable — but that would be a ways down the road.

The high levels of uncertainty surrounding this stock have certainly driven up options premiums, which make spreads like this one expensive.

Risking $0.55 in an attempt to make $.45 over 185 days on a 20 percent down move in the stock is not a risk profile that impresses me, so I will be on the sidelines for the time being, looking for other ways to short Groupon if I decide to play at all.

Brian Stutland is the President of Stutland Equities and a contributor to CNBC's "Options Action ."

Watch Options Action on CNBC Fridays 5:00pm ET, Saturdays at 6a ET and on Sundays at 6a ET

Questions, comments send them to us at:

Latest Video


Host Bio

  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

From Our Sponsor