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Trade of the Day: Groupon (GRPN)

GRPN has a shot at over 30% upside in the next month


In keeping with my objective to find lower priced — but heavily traded — stocks for naked-put positions, I’m going with Groupon (GRPN) for a trade.

Groupon is an operator of local-commerce marketplaces that connects merchants to consumers by offering goods and services at a discount, both in North America and internationally. After bringing in new management following a very tough first year as a public company, the story has come to life in its fifth year of operations, and the latest upside earnings surprise has captured Wall Street’s attention. Though disappointing earnings from eBay (EBAY) hit the Internet auction and online coupon stocks in sympathy earlier this month, GRPN turned in such a banner Q2 quarter, that I believe the new management team will again deliver strong results.

2013-10-24_1649When possible, I want exposure to well-positioned Internet companies. It is how the new economy runs, and where potential high growth rates exist. Though it has pulled back below the 50-day MA, the stock is in a powerful long-term uptrend in which the prospect for the stock to clear $13 by November expiration is very good.

Remember the No. 1 rule for selling naked puts: Only sell to open as many put contracts that correspond to as many shares of the underlying stock you would be comfortable owning. Said another way, since one put contract corresponds to 100 shares of the underlying stock, if you sell 10 put contracts, you could be obligated to buy 1,000 shares of the stock if it’s put to you. For most investors, selling only one or two put contracts is best to keep the capital requirement manageable.

Recommendation: Sell to open the GRPN November $13 Put (GRPN131116P00013000) at market.

Bryan Perry is the editor of Cash Machine, a newsletter focused on high-yield income investing with the goal of maintaining a blended total yield of 10% across two portfolios. Bryan is also the editor of Extreme Income,which uses the power of historically cheap money to create a leveraged “baby hedge fund” strategy that paves the way to massive profits and 4x greater income.

Now is the perfect time to join Bryan Perry’s breakthrough income investing service, Cash Machine Trader, and discover how selling covered-call options can help you manufacture ‘top-up dividends’ of up to 30% per year.


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