OptionsTrade Alert: May Bearish Double Vertical on Groupon
NEW YORK ( Top Gun Options ) -- Strategic Mindset: At Top Gun Options , we remain overall market neutral with a bullish short-term outlook and bearish strategic long-term mindset. We do not plan on fighting the tape as the visible hand of the Fed, markets whistling past the eurozone graveyard, and Iran and Israel becoming best friends seems to be the theme on the Street. We know differently and adjust our model portfolios to meet the changing conditions on the battlefield. The target we have selected is a former internet darling, i.e. flash in the pan, and one that's starting to turn into a clown car run by 19-year olds who would rather watch Blackhawk games than run their company and have a tight fiscal ship.
The Wall Street Journal reported over the weekend that Groupon(GRPN) revised fourth-quarter estimates downward after a high rate of returns on high dollar products from the holiday season. Growth is slowing and many small retailers are reporting that they are losing money on GRPN offers and not seeing returning customers as planned, promised and hoped.
Groupon may get its house in order and turn things around, but it needs a dedicated effort that we're not seeing.
Target: Groupon currently trading at $18.38.
Commit Criteria: Groupon's successful IPO in November was promptly followed by a plop. As the six-month chart below shows, it underwent an equal and opposite reaction after the IPO. The shares halved from $30ish to $15ish in December and found a trading range after that.
Here's some good intel that adds to our Commit Criteria -- the lockup period for those who got in on the IPO expires in early May, and if I were one of them, I'd be dumping those shares like you read about in "Dump Those Shares" magazine.
The tactic we have chosen suits our strategic mindset and commit criteria and takes advantage of a pullback in GRPN by May expiration.
GRPN has found support recently around $16.50 and seems to be making a little run of late. We are sellers of this run.
Tactic: May 15/18/22/25 Bearish Double Vertical
Tactical Employment: In our Primary Model Portfolio, we will:
Midcourse Guidance: We've employed the double vertical recently, both bullish. LVS returned 720% and out current USO trade is hanging out. Remember -- double verticals are afterburner trades. We are making an assumption about the direction a stock will move in the future. But based on our strategic mindset and commit criteria, we feel GRPN is ready for a reality check to the downside.