Groupon’s Gains May Be All Short Covering

Groupon, Inc. (NASDAQ: GRPN) had what turned out to be a stellar earnings report.  Shares rose handily on Monday as short sellers got out of the way and also as speculators were hoping that things had been priced in far too negatively ahead of earnings.  Despite some crummy accounting controls, Groupon managed to turn in a positive earnings report with earnings and sales beating expectations. The report looked good enough that it almost feels like the management team did everything to please every sort of investor.  There may be more, or less, to the story and that is tied to the huge short interest.

We did witness some analyst upgrades today as both Stern Agee and also Citigroup raised their ratings to Buy from Hold after the earnings.  What may be driving shares the most today is continued short covering.  If you take a look below, you can see the settlement data for the short interest based on each settlement date but keep in mind that Groupon now trades only about 2.62 million shares on an average day:

Date….. Short Int.

4/30/2012  17,427,665

4/13/2012  19,210,861

3/30/2012  23,338,658

3/15/2012  21,675,204

2/29/2012  19,026,896

2/15/2012  18,396,790

1/31/2012  16,920,424

1/13/2012  16,484,330

12/30/2011  17,328,422

12/15/2011  14,796,819

11/30/2011  7,637,404

11/15/2011  2,919,091

If you include the after-hours session from Monday, volume was 16.2 million shares on Monday.  Only one day last week saw more than 2 million shares traded in a day.  If this is not a classic short-covering then nothing else is.

Another issue today is that as of 1:30 PM EST we have already seen some 28,000 call options trade for the May expiration alone and over 10,000 of the June expiration calls trade.  That is the equivalent of another 2.8 million shares and 1 million shares if you convert options contracts as 1 contract per 100 shares on a fully leveraged basis.

What is interesting is the put option volume today.  If you look at the June put options there have been almost 22,000 contracts and in the June expirations we have seen over 20,000 put options trade in the June contracts.

Groupon shares are currently up 11.5% at $13.09 and the post-IPO range is $9.63 to $31.14.  Groupon was a $9.90 stock at the close of trading on Friday.

JON C. OGG