Trade Idea - Short Put Ladder on GRPN

Disclaimer: The trades discussed in this blog reflect the author's personal strategies and decisions. These are not financial advice and should not be considered recommendations to buy, sell, or hold any financial instruments. The author is not a licensed financial advisor. Options trading carries significant risk, and readers should perform their own research or consult a qualified financial advisor before making any investment decisions. Past performance does not guarantee future results.

After a volatile earnings reaction, Groupon (GRPN) caught my attention this week. Following a surprisingly strong earnings report, the stock surged over 45% in a single day and is now trading above $26. While this kind of move can excite bullish traders, I’m approaching it with caution. In my view, such sharp moves often invite profit-taking, especially when the underlying business fundamentals are still in flux.

The Trade

I wanted to structure a trade that captures potential downside if the stock pulls back, but also keeps my risk capped if the market continues pushing GRPN higher. To that end, I opened a short put ladder, a somewhat contrarian strategy designed to profit if the stock retreats sharply, while maintaining a limited loss zone in the middle and upside coverage.

Here’s the structure:

GRPN Short Put Ladder

• Buy 1 Put @ $26
• Buy 1 Put @ $28
• Sell 1 Put @ $30
  Expiration: First week of June

The P&L looks like this (I used our custom scan feature to create it, I find it very easy to use to scan the market for unconventional strategy ideas. The feature will be available for users soon):

This setup is a neutral-to-bearish play. My sweet spot is if GRPN drops below $24.13, where I start realizing gains from the two long puts. On the upside, I’m covered again if GRPN moves decisively above $30. The maximum risk sits in the narrow band between $26 and $30, where the trade shows a modest potential loss of just under $200.

To give you a better context, you can see GRPN price chart below:

Why I’m Cautiously Bearish

While the recent earnings beat was impressive - reportedly delivering an EPS surprise north of 200% - I believe much of the rally may be fueled by short covering or speculative momentum. The average analyst price target remains low, around $19.25, which implies a potentially overbought situation.

Several longer-term headwinds remain:

• Struggling Core Model: Groupon’s dependence on daily deals makes it highly sensitive to macroeconomic shifts. As a largely discretionary spending platform, Groupon may suffer if consumer sentiment weakens.
• Persistent Losses: The company has yet to turn consistent profits and had accumulated a deficit of $1.5 billion by the end of 2024. Revenue trends are also uninspiring, declining from $3.01 billion in 2016 to just $492.6 million in 2024.
• Rising Costs: Increased investments in platform upgrades and mobile features, while potentially beneficial long-term, will pressure near-term margins.
• Tough Competition: Groupon faces increasing competition from social media platforms entering the e-commerce space. This weakens its pricing power and merchant relationships.

Why I’m Not Fully Bearish

Despite the fundamental risks, there are green shoots worth monitoring:

• Strategic Transformation: Groupon is shifting from a deals platform to a broader marketplace. Enhancements like map-based search, Google Calendar integrations, and self-service APIs for merchants could improve both user and merchant engagement.
• Operational Improvements: The company is leveraging AI to streamline deal creation and recommendation engines, while enterprise sales efforts have reportedly seen improved efficiency.
• Cost Control Measures: Groupon’s 2022 Cost Savings Plan is in full swing, targeting over 1,100 job reductions and significant overhead cuts to help stabilize operations.

This short put ladder gives me exposure to potential downside momentum without taking on unlimited risk if the stock keeps climbing irrationally. I’ll be monitoring closely how the stock behaves near the $26 and $30 range over the next few weeks.

For transparency, you can find all my trades in the public trade log.