GRPN, WMT, GLD Options — Unusual Trading Activity — May 18, 2012

| May 18, 2012 | 0 Comments

Unusual Trading VolumeThis week we’re going back to take a look at some very unusual options trading activity in Groupon (GRPN), Wal-Mart (WMT), and SPDR Gold Shares (GLD).

As many of you know, unusual options volume can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.

This is something professional options traders pay a lot of attention to, and for good reason…

Unusual options activity can “tip off” big moves in a stock, either up or down.

So let’s take a look at some ‘interesting’ activity that caught our eye this week:

Groupon Options (GRPN)

Options in e-commerce company Groupon (GRPN) experienced a large amount of trading activity Monday.

Even though the stock market had morning jitters, this is another big week for earnings announcements.

And earnings this week kick off after the close today with Groupon.

If you remember, last month GRPN stock took a huge beating of over 20% on allegations of accounting irregularities.  In addition, it guided lower for this quarter’s earnings.

Now sitting at an all-time low, option traders are finding value and positioning for a pop in the stock price on tonight’s earnings.

In fact, right after this morning open, one trader came in and sold 3,500 contracts of the June GRPN $9 strike put options.

He sold these for a whopping $1.15 a share… a total credit of $402,500.

Remember, put selling is a bullish trade where an option trader needs the stock to stay at or above the strike price by expiration.  And that’s exactly what this trader is expecting.

So, all he needs to keep his entire premium is for GRPN to stay at or above $9 by June expiration.  For this trader to be incorrect, the stock would need to fall an additional 22% from its current price of $11.00.

The probability of that happening is not very high.

For those of you who don’t know, Groupon operates as a local commerce marketplace that connects merchants to consumers by offering goods and services at a discount in North America and internationally.

The company sends daily emails to its subscribers regarding discounted offers for goods and services that are targeted by location and personal preferences.

The reason for this large activity comes on the heels of tonight’s anticipated positive earnings announcement.

Also, the stock itself is carrying a very large short interest.  Meaning, there’s many traders that are short this name.

And the higher the short interest, the higher probability the stock gets squeezed.  In other words, if GRPN gets some good news tonight, the short sellers will be forced to buy their shares back.

As a result, the stock will automatically move higher due to increased buying activity.

Wal-Mart Options (WMT)

Options in mega retailer Wal-Mart (WMT) showed large activity Tuesday.

Don’t forget, we’re still focusing on heavy activity along with upcoming earnings.

And with WMT reporting earnings tomorrow before the open, option traders are positioning for a rise in the stock price.

Let’s remember, traders must be aware that this Friday is May expiration.  However traders position for this company, their options expire the very next day.

In other words, there’s no room for error!

This market has been erratic to say the least, and options traders seem to be concerned.

So, with WMT trading at $59.63, how are traders positioning for Wednesday morning?

They’re simply buying call options…  specifically the WMT May $60 contracts for an average price of $0.40 per share.

Right out of the gate, one option trader bought 2,500 contracts of this strike.  And it cost him $100,000.

Here’s the kicker… he’s got unlimited upside potential.

Remember, option traders buy calls when they feel a stock is going straight up and they’re not concerned with limiting risk.

So, what’s behind this bullish trade?

As most of you know, Wal-Mart is the largest retailer in the world with more than $400 billion in annual revenue.

The company mainly operates supercenters.  Groceries account for roughly half of total sales with the other half in general merchandise that includes items in automotive, apparel, health and wellness, entertainment, and home goods.

It all comes down to this…

I think this large call activity is due to analysts’ expectations for upcoming earnings and the recent strength in the consumer staples sector.

SPDR Gold Shares Options (GLD)

Options in the SPDR Gold Shares (GLD) lit up our radar with enormous volume right at the close Wednesday.  And it continues into today.

Our tracking system is showing heavy put buying concentrated on the GLD May $143 strike contracts.

Here’s the kicker.

On Wednesday, one trader came in and purchased 20,000 contracts of this May strike for an average price of a mere $0.07 a share.

That’s a long way to the downside in a very short period of time.

In fact, if gold prices do continue to fall at a rapid rate like we’ve seen, this trader will come into some hefty profits.

Even though this strike is close to 8 points out of the money, our tracking system still calculates a 30% probability of this trader making money by the end of the week.

That’s just incredible!  To have that high of a probability with only 3 days of time left.

So, what could this be telling us about gold prices?

Historically, as the market moves lower, gold prices usually move higher.  However, during the last few weeks, this has not been the case.

With as much trouble we’re seeing in the equity markets lately, most investors are astonished this inverse correlation is not more pronounced.  In other words, gold should be soaring.

And with the GLD not being able to catch a bid, investors are worried that this thesis of an inverse correlation to the market is just plain broken.

But the fact remains, with the GLD trading at $151 a share, it’s very troubling that option traders actually feel that a $143 price tag can be possible in four days.

More Options Ideas…

That wraps up this week’s unusual options trading and volume…

Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.

We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!

So keep an eye on your email inbox… we have a lot more options trading ideas coming your way!

Safe Trading,

Marcus Haber

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Category: Unusual Options Trading Activity

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.