Groupon(GRPN)

[Causalien]

do all remember atrpdoc's classic put squeeze in apple. As i recall he sold an atm weekly put shortly before earnings & also bought a 2-3 month otm put.

stk rose in the usual pre-earnings hype so the weekly expired without assignment & he got to keep the premium as profit.

then stk fell in the usual post earnings disappointment so his cheap otm put came into the money & he sold it for another profit.

what the pro traders never do as far as i understand - but what newbies often believe in - is to put on a long straddle just before earnings. The premiums will be so high that the probability the straddle will exceed the premiums is just about zero. As all have noted in this thread, the put premiums in grpn weeklies didn't decline as time value approached expiration. Same thing for the calls. There is usually enuf earnings hype to keep em up.

there are option traders who methodically work this phenomenon like roman soldiers. Not straddles. Not simple monodirectional bets. With 4-legged condors or flies. Not in cmf forum. Maybe find em some place like elitetrader dot com.

I took 10 min and figured out what atr was doing. I think it's worth doing in hyped tech stocks when the bubble is nearing bursting... whcih won't happen until near, or after Facebook.

On elitetrader. I find that it also have a large population of inexperienced traders. The worst thing is, the newbies jump straight into these exotic strategies and just fade away after they secretly lost all their money. At least people here know when they shouldn't touch options.

*edit:

Looking into it in more detail. What I had thought at the beginning as a problem with this strategy turned out to be a non problem. I was worried that the long dated option will cost more, forcing you to have to sell more short dated option creating a inequality that can be risky. But I played around with further OTM strikes and saw that this strategy's main profit is from the short sell put. The long dated put that's bought will almost have to be dissolved right away after earnings, otherwise you are in for some trouble.

The adverse scenario would be a huge drop before earnings. In which case, the structure only protects you against a 1~2% drop. Drop before earnings is almost unheard of.

Increasing the amount of long OTM put purchase to 5x that of short weekly ITM put will make the drop risk disappear while maintaining most of the profit.

In all cases, I don't understand why one would keep the OTM long put until after earnings since that become a unidirectional bet.

[humble_pie]

cause i think your remarks are very apropos. Yes esp one would have to sell the long put side as soon as the post-earnings plunge occurred.

believe it or not i tried discussing an identical structure with ddkay, in apple puts last fall, in the days before iphone 4S was announced. Results were hilarious, things did not go as expected although the notional spread did make money, ddkay was plugging prices into think-or-swim's trial platform.

you'll recall that the issue was would apple debut iphone 5 or just a revamped 4S. There was a fair amount of leakage that it would be 4S. We had sold a weekly put & bought another 3 months out, but the wretched share price didn't go up just before announcement (because of the leaks, i assume.) Instead share price dropped.

the weekly put fell into the money & was going to be exercised on friday. Disaster. Account would be debited $47,000. Never an option trader, ddkay didn't seem to understand about the looming assignment. So on wednesday or thursday morning here in cmf forum i had to shout & holler Buy. Back. The. Blasted. Put. ASAP. I think ddkay was sleeping in. Eventually he woke up & bought the put back by 11 am.

on the other side, the longer put we had bought increased value a bit, so in the end the pair did produce a minor gain.

all this is why i never, ever, do weeklies.

on a related issue, interesting to hear that elitetrader dot com has gone somewhat to the dogs with too many gambling newbies. I must confess i don't read there, maybe less than once a year.

[Causalien]

Material Weakness = politically correct way to say Fraud.
Death knell of tech startups.
Don't say you weren't warned. Get out ASAP.

[Dibs]

"Why Groupon is poised for collapse"

http://venturebeat.com/2012/03/31/wh...-for-collapse/

[CashMoney101]

Groupon always seemed a little flakey to me just from my gut feeling about their business model. They are basically hacking value/profits out of other companies' sales in some insane rush to attract the lowest form of customer-- the disloyal, bargain hunting mob. Now sure there is something to be said for volume of sales, but in reality most of them are using a loss leader to attract customers who have almost no likelihood to be upsold or return for repeat business. They have no loyalty to the company, they only have a loyalty to the next cheap groupon deal they can get their grubby hands on. Loss leaders are fine if you are able to score actual quality customers, but using one to attract people with this kind of mentality sure seemed like a horrible idea. This has been confirmed in multiple articles I've read over the last year about business owners getting hosed through their use of Groupons to try and attract sales but wind up attracting losses and customer service nightmares instead.

Cheers for that article, he puts the speculation aside and gets to the cold hard numbers. Especially troubling is how they are up to their eyeballs in accounting trickery which should be the only red flag an investor needs to stay the hell away from the stock.

[doctrine]

The biggest crime will be in the first week of May, when the 6 month limit on selling shares by insiders expires. That will be their time to cash out big time at the expense of everyone else. Although they are now below their IPO price, it's still ridiculously valued.

[zylon]

"Groupon CEO, founders to keep shares after lockup"

http://ca.reuters.com/article/busine...84G0TG20120517

[Young&Ambitious]

This stock is diving... Predictions?

[doctrine]

Zero eventually

[Lephturn]

Grouponzi