Options on Groupon Now Available

Did you hear all the hype about the Goupon IPO?  It’s been big news the last few weeks.  I know the financial writer in the Dallas Morning News said after looking at their financials he wouldn’t touch it.  So if you decide to invest in Groupon options after reading the article below, just make sure you do your due diligence and check the company out throurghly before you jump in.

After a successful IPO on November 4th, Groupon (GRPN) options traded for the first time on Monday. TK’s Brian Overby outlines some points to remember if you’re interested in trading options in new public stock offerings.

In an article posted November 4th on CNN Money it announced the Groupon’s Initial Public Offering (IPO) and the projected price of $20 per share. Since the first public trade of the stock the high water mark hit 31.14 and is now trading as of this writing around the $24 mark. Groupon’s stock price volatility has definitely lived up to it’s expectations. Groupon sold only 5.5 percent of the shares available to the public. The limited amount of shares available may keep the volatility rolling along in the stock price for some time to come.

The volume in GRPN’s options was a respectable 12,513 contracts on the first trading day. With that said, the width between the Bid and Ask on most of the option strikes and expirations was quite wide and will most likely stay that way for a while until the markets get some pricing discovery in the stock and the option contracts.

Buyers of both puts and calls: Beware of volatility crunch on the first week of trading.  Market makers will most likely spike up IV, and you can get burned. You should also be aware that buying put options can result in you losing 100% of your investment in the puts, should GRPN move against you to the upside.

Another important note is that GRPN is currently in a “hard to borrow” state. If the stock remains hard to borrow due to high levels of short selling, it may inflate put prices vs that of calls.

Trading options on highly publicized IPO stocks is tempting, but it is very important to understand that there are many forces in play with the option contracts besides the volatile movement of the stock price.  You’ve been warned!

Written By: Brian Overby – TradeKing’s Options Guy – www.tradeking.com

See Fox Business for the entire article

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